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.
Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.