Deductibility of share incentive schemes
10 May 2012
Posted by: SAIT Technical
By SAIT Technical
In February 2012, SAIT Technical reported on the CSARS v Labat Africa judgment where the Supreme Court of Appeal (SCA) held that the issue of a company's own shares do not constitute 'expenditure'.
Click here to access the SCA judgment.
Where companies wish to issue shares as incentives to employees, a deduction is available under section 11(lA). However, this deduction is limited to R10 000 per annum per employee and has to be part of a broad-based scheme where at least 80% of employees are entitled to participate.
Should a particular allotment of shares granted to employees not meet the conditions of section 11 (lA), it does not preclude an employer-company to attempt a deduction in terms of section 11(a), the so-called general deduction formula.
However, section 11(a) contains the word 'expenditure'.
The principle laid down in the Labat judgment that the issue of a company's own shares do not constitute expenditure would therefore likely also rule out a deduction of a share incentive scheme in terms of section 11(a).