A taxpayer can apply to the South African Revenue Service
(SARS) for a binding ruling if the application of legislation is
uncertain. The taxation of share incentive scheme benefits has been
the subject of a whopping eighteen binding rulings published on the
SARS website. This bears testimony to the complexity of the
legislation, despite SARS' efforts to clarify legislative
interpretation through the publication of two interpretation
Not only is the tax treatment of benefits in the hands of
employees complicated, but the taxation is not aligned with the
income tax deduction of the employer share scheme costs.
Also, the tax legislation does not adequately distinguish
between, and therefore appropriately cater for, broad-based schemes
(typically implemented to promote black economic empowerment) and
executive share incentive schemes. Legislation intended for
broad-based schemes is seldom applied because the requirements are
too difficult to meet. By default, lower-income participants of
broad-based schemes are taxed on the same basis as executives.
Due to these issues, it was announced in the 2013 budget that we
may expect modifications to the tax treatment of employment share
schemes. The only share scheme-related amendment in 2013 was a
change to tax employment-related dividends that do not form part of
share scheme benefits that are covered by the legislation.
A complete overhaul of the share scheme legislation requires
extensive investigation and consultation. It may be too early to
expect legislative change in 2014. It will, however, be no surprise
if there is more detail regarding the proposals to change the
taxation of share schemes in the 2014 budget.
This article first appeared on MoneyWebTax, 17 February 2014
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
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Effective collaboration amongst government agencies, automation of processes and capacity building by tax authorities have always been identified by stakeholders as strategies for achieving an efficient tax system.
In response to information provided by FIRS, NSE has sent letters to publicly listed companies, who were purportedly identified by FIRS as non-compliant.
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