8C.     Taxation of directors and employees on vesting of equity instruments

(1)

(a)     Notwithstanding section sections 9C and 23(m), a taxpayer must include in or deduct from his or her income for a year of assessment any gain or loss determined in terms of subsection (2) in respect of the vesting during that year of any equity instrument, if that equity instrument was acquired by that taxpayer –

[Words preceding subparagraph (i) substituted by section 6 of Act 43 of 2014 effective on 20 January 2015]

 

(i)      by virtue of his or her employment or office of director of any company or from any person by arrangement with the taxpayer’s employer;

 

(ii)     by virtue of any restricted equity instrument held by that taxpayer in respect of which this section will apply upon vesting thereof; or

 

(iii)    as a restricted equity instrument during the period of his or her employment by or office of director of any company from-

 

(aa)   that company or any associated institution in relation to that company; or

 

(bb)   any person employed by or that is a director of-

 

(A)    that company; or

 

(B)    any associated institution in relation to that company.

 

(b)     This section does not apply in respect of any equity instrument which –

 

(i)      was acquired by the exercise or conversion of, or in exchange for the disposal of, any other equity instrument where this section applied in respect of the vesting of that other equity instrument before that exercise, conversion or exchange; or

 

(ii)     constitutes a qualifying equity share contemplated in section 8B.

(1A)    A taxpayer must include any amount received by or accrued to him or her during a year of assessment in respect of a restricted equity instrument in his or her income for that year of assessment if that amount does not constitute-

(a)     a return of capital or foreign return of capital by way of a distribution of a restricted equity instrument;

(b)     a dividend or foreign dividend in respect of that restricted equity instrument; or

(c)     an amount that must be taken into account in determining the gain or loss, in terms of this section, in respect of that restricted equity instrument.

[Subsection (1A) inserted by section 11 of Act 60 of 2008, substituted by section 12 of Act 7 of 2010, section 19 of Act 24 of 2011 and section 13 of Act 15 of 2016 effective on 1 March 2017, applies in respect of amounts received or accrued on or after that date]

(2)

(a)     The gain to be included in the income of a taxpayer –

 

(i)      in the case of –

 

(aa)   a disposal contemplated in subsection (5)(c); or

 

(bb)   a disposal by way of release, abandonment or lapse of an option or financial instrument contemplated in paragraph (a) or (b) of the definition of ‘equity instrument’,

 

is the amount received or accrued in respect of that disposal which exceeds the sum of any consideration in respect of that equity instrument; or

(ii)     in any other case, is the amount by which the market value of the equity instrument determined at the time that it vests in that taxpayer exceeds the sum of any consideration in respect of that equity instrument.

 

(b)     The loss to be deducted from the income of a taxpayer –

 

(i)      in the case of –

 

(aa)   a disposal contemplated in subsection (5)(c); or

 

(bb)   a disposal by way of release, abandonment or lapse of an option or financial instrument contemplated in paragraph (a) or (b) of the definition of ‘equity instrument’,

 

is the amount by which the sum of any consideration in respect of that equity instrument exceeds the amount received or accrued in respect of that disposal; or

(ii)     in any other case, is the amount by which the consideration in respect of the equity instrument exceeds the market value of that equity instrument determined at the time that it vests in that taxpayer.

(3)     An equity instrument acquired by a taxpayer is deemed for the purposes of this section to vest in that taxpayer –

(a)     in the case of the acquisition of an unrestricted equity instrument, at the time of that acquisition; or

 

(b)     in the case of the acquisition of a restricted equity instrument, at the earliest of –

 

(i)      when all the restrictions, which result in that equity instrument being a restricted equity instrument, cease to have effect;

 

(ii)     immediately before that taxpayer disposes of that restricted equity instrument, other than a disposal contemplated in subsection (4) or (5)(a), (b) or (c);

 

(iii)    immediately after that equity instrument, which is an option contemplated in paragraph (a) of the definition of ‘equity instrument’ or a financial instrument contemplated in paragraph (b) of that definition, terminates (otherwise than by the exercise or conversion of that equity instrument);

 

(iv)    immediately before that taxpayer dies, if all the restrictions relating to that equity instrument are or may be lifted on or after death; and

 

(v)     the time a disposal contemplated in subsection (2)(a)(1) or (b)(i) occurs.

 

(4)

(a)     If a taxpayer disposes of a restricted equity instrument which was acquired in the manner contemplated in subsection (1) for an amount which consists of or includes any other restricted equity instrument in the employer of the taxpayer or an associated institution in relation to the employer, that other restricted equity instrument acquired in exchange is deemed to be acquired by that taxpayer by virtue of his or her employment or office of director of any company.

 

(b)     If the amount received or accrued in respect of the restricted equity instrument which is disposed of as contemplated in paragraph (a) includes any payment in a form other than restricted equity instruments, that payment less any consideration attributable to that payment must be deemed to be a gain or loss which must be included in or deducted from the income of the taxpayer in the year of assessment during which that restricted equity instrument is so disposed of.

(5)

(a)     If a restricted equity instrument which was acquired by a taxpayer in the manner contemplated in subsection (1) is disposed of by that taxpayer to any person –

 

(i)      otherwise than by or under a disposal made in terms of a transaction at arm’s length; or

 

(ii)     who is a connected person in relation to that taxpayer, the provisions of subsections (2), (3) and (4) apply mutatis mutandis in the determination of any gain or loss made by that person as if that person had been the taxpayer, and that gain or loss is for purposes of subsection (1) deemed to be made by that taxpayer in respect of the vesting of that equity instrument.

 

(b)     If an equity instrument was acquired by any person other than the taxpayer by virtue of the taxpayer’s employment or office of director, that equity instrument must, for purposes of this section, be deemed to have been so acquired by that taxpayer and disposed of to that person in the manner contemplated in paragraph (a).

 

(c)     Paragraph (a) does not apply where a taxpayer disposes of any restricted equity instrument (including by way of forfeiture, lapse or cancellation) to his or her employer, an associated institution or other person by arrangement with the employer in terms of a restriction imposed in relation to that equity instrument for an amount which is less than the market value of that restricted equity instrument.

  (6)     If a person who acquires a restricted equity instrument from the taxpayer as contemplated in subsection (5), disposes of that restricted equity instrument to any other person in the manner contemplated in subsection (5)(a)(i) or to a connected person in relation to the taxpayer, subsection (5) applies in respect of that other person as if he or she had acquired that restricted equity instrument directly from that taxpayer.