Analysis of the interaction between the income tax and capital gains tax provisions applicable to share dealers

[摘要] ENGLISH ABSTRACT: The interaction between the income tax provisions contained in sections 9B, 9C, 11(a) and 22 of the Income Tax Act No. 58 of 1962 (the Act), and the capital gains tax (CGT) provisions of the Eighth Schedule of the Act, are complex and share dealers should approach the tax consequences of share dealing profits with caution.The objective of the assignment was to ensure that the share dealing profits of share dealers (who transact on revenue account) are taxed correctly, with specific reference to the interaction between the aforementioned provisions. This was achieved by considering tax cases, the interpretation notes of the South African Revenue Services (SARS) and commentary of tax writers. Examples of share disposals were incorporated to illustrate that consistency is required between the calculation of profits for income tax and CGT purposes.The guidelines laid down by case law to determine the revenue nature of share disposals were investigated. It was concluded that share dealing profits which are designedly sought for and worked for, either as part of a business operation or not, are of a revenue nature and taxable as such.The method of identification of shares sold as trading stock is important when calculating the income tax profit, since it is used in order to determine both which shares are sold as well as the cost of the shares sold. It was concluded that the method of identification applied in terms of generally accepted accounting practice (GAAP) is generally also acceptable from an income tax perspective.Section 9C of the Act provides a share dealer income tax relief when a 'qualifying share' is disposed of. Any amount received or accrued as a result of the disposal of a qualifying share is deemed to be of a capital nature, regardless of the revenue intention of the share dealer. Prior to 1 October 2007, section 9B of the Act provided similar relief to the disposal of an 'affected share'. It was concluded that section 9C of the Act has a wider scope of application compared to section 9B of the Act.Because the proceeds received on the disposal of affected or qualifying shares are excluded from gross income, the acquisition costs previously incurred and deducted in respect of such shares must be included in taxable income. It was determined that the amount to be included in income is the actual cost of such shares and not the opening trading stock value determined in terms of GAAP and claimed in terms of section 22(2) of the Act.It was concluded that the first-in-first-out (FIFO) method of identification should be applied to determine which affected or qualifying shares have been disposed of. From a CGT perspective, it was illustrated that a share dealer loses the opportunity to choose which identification method to apply and is obliged to also apply the FIFO method in calculating the CGT base cost of the shares.It is concluded that the Eighth Schedule of the Act should be amended to clarify that the FIFO method should be applied for CGT purposes where sections 9B or 9C of the Act find application. Only then will the tax profits of a share dealer be in sync with his or her cash benefit.

[发布机构] Stellenbosch University