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Proposed amendments to the rules dealing with the taxation of employee-based incentive plans

22 August 2016   (0 Comments)
Posted by: Authors: Robert Gad and Megan McCormack
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Authors: Robert Gad and Megan McCormack (ENSafrica)

The Draft Taxation Laws Amendment Bill of 2016 was released for public comment on Friday 8 July (the "2016 TLAB”). It proposes certain amendments to the rules currently contained in the Income Tax Act No. 58 of 1962 (the "Act”) dealing with employee-based incentive plans.

Some of these proposed changes were foreshadowed by announcements made by the Minister of Finance in the 2016 Budget Speech, namely that:

  • section 8C of the Act will be reviewed to address schemes where restricted shares held by employees are liquidated in return for an amount qualifying as a dividend
  • certain dividends in respect of restricted equity instruments are subject to income tax. These taxable dividends will be specifically included in the definition of "remuneration” for employees’ tax purposes
  • the Act will be amended to avoid possible double taxation on the acquisition of a restricted equity instrument under both the definition of "gross income” and under section 8C of the Act

Specifically, a substitution of paragraph (ii) of the proviso to section 10(1)(k)(i) has also been proposed. This paragraph of the proviso currently provides that any dividends received or accrued to a taxpayer in respect of services rendered or to be rendered, or in respect of/by virtue of employment or the holding of any office, will not be exempt from income tax, unless that dividend was received or accrued in respect of a restricted equity instrument held by that person, or in respect of a share held by that person.

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