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South Africa Issues Tax Guide For Shareholders

Wednesday, March 28, 2012

The South African Revenue Service (SARS) has issued a new tax guide for shareholders, in which it attempts to provide general guidance for the increasing number of South Africans who have become owners of shares.

In recent years, an increasing number of South Africans have become shareholders. With interest rates at their lowest levels in thirty years many investors have turned to participation in the Johannesburg Stock Exchange, either directly through share ownership or indirectly through collective investment schemes, in an attempt to derive a return that beats inflation.

The proliferation of broad-based employee share incentive arrangements has also contributed to share ownership among South Africans.

SARS summarizes some of the key aspects shareholders need to be aware of in computing their liability for income tax and capital gains tax (CGT). It is primarily aimed at resident individuals who own shares in their own names, but many of the principles covered apply equally to companies and trusts, and when appropriate the more obvious differences in the treatment of these entities have been highlighted.

Non-residents are generally only subject to CGT on the disposal of shares in companies holding immovable property in South Africa and the guide will have limited application to such persons.

Therefore, amongst other things, the guide examines the tax consequences of holding shares as trading stock compared to holding them as capital assets; how to distinguish between profits of a capital and revenue nature using common law principles and statutory rules; and the calculation of a taxpayerís liability for CGT.

SARS also looks at how dividends are taxed, and the various corporate actions that can impact on the determination of a personís liability for tax.

This guide is based on South African legislation as at January 10, 2012, and primarily focuses on the 2012 year of assessment although much of its commentary will also apply to earlier fiscal years. In addition, some legislative changes affecting the 2013 year of assessment are also examined.