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Does a change of the terms of a share constitute a new “date of issue” for purposes of section 8E

Wednesday, 15 February 2017   (0 Comments)
Posted by: Authors: Carmen Gers and Chris de Bruyn
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Authors: Carmen Gers and Chris de Bruyn (ENSafrica)

In terms of section 8E of the South African Income Tax Act, 1962 (the “Act”), dividends received by or accrued to a person in respect of certain shares and “equity instruments”, as defined, must be deemed in relation to that person to be an amount of income if that share or equity instrument constitutes a “hybrid equity instrument” at any time during that year of assessment.

The term “hybrid equity instrument” is defined in section 8E, inter alia, as:

(a) “any share, other than an equity share, if –

i. the issuer of that share is obliged to redeem that share in whole or in part; or

ii. that share may at the option of the holder be redeemed in whole or in part,

within a period of three years from the date of issue of that share.”

Paragraph (b) of the definition deals with shares other than those contemplated in paragraph (a) (and thus, broadly speaking, equity shares), contains similar provisions, but with an additional requirement should paragraph (i) or (ii) above be met.

(a) “Date of issue” is defined in section 8E of the Act, in relation to a share in a company, as the date on which:

(b) “the share is issued by the company;

(c) the company at any time after the share has been issued undertakes the obligation to redeem that share in whole or in part; or

the holder of the share at any time after the share has been issued obtains that right to require that share to be redeemed in whole or in part, otherwise than as a result of the acquisition of that share by that holder.”

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This article first appeared on ensafrica.com.


 

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