Category: PART I – Normal Tax (ITA)

“Third-party backed share” definition of section 8EA of ITA

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“third­-party backed share” means any preference share or equity instrument in respect of which an enforcement right is exercisable by the holder of that preference share or equity instrument as a result of any amount of any specified dividend, foreign dividend, return of capital or foreign return of capital attributable to that share or equity instrument not being received by or accruing to any person entitled thereto;

[Definition of “third-­party backed share” amended by section 11(1)(c) of Act 31 of 2013 and substituted by section 15(1)(f) of Act 15 of 2016 and by section 9(b) of Act 34 of 2019]

“Restricted equity instrument” definition of section 8C of ITA

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‘restricted equity instrument’ in relation to a taxpayer means an equity instrument –

 

(a)     which is subject to any restriction (other than a restriction imposed by legislation) that prevents the taxpayer from freely disposing of that equity instrument at market value;

 

(b)     which is subject to any restriction that could result in the taxpayer-

 

 (i)      forfeiting ownership or the right to acquire ownership of that equity instrument otherwise than at market value; or

 

(ii)     being penalised financially in any other manner for not complying with the terms of the agreement for the acquisition of that equity instrument;

 

(c)     if any person has retained the right to impose a restriction contemplated in paragraph (a) or (b) on the disposal of that equity instrument;

 

(d)     which is an option contemplated in paragraph (a) of the definition of ‘equity instrument’ and where the equity instrument which can be acquired in terms of that option will be a restricted equity instrument;

 

(e)     which is a financial instrument contemplated in paragraph (b) of the definition of ‘equity instrument’ and where the equity instrument to which that financial instrument can be converted will be a restricted equity instrument;

 

(f)      if the employer, associated institution in relation to the employer or other person by arrangement with the employer has at the time of acquisition by the taxpayer of the equity instrument undertaken to –

 

(i)      cancel the transaction under which that taxpayer acquired the equity instrument; or

 

(ii)     repurchase that equity instrument from that taxpayer at a price exceeding its market value on the date of repurchase,

 

if there is a decline in the value of the equity instrument after that acquisition; or

 

(g)     which is not deliverable to the taxpayer until the happening of an event, whether fixed or contingent; and

“Qualifying purpose” definition of section 8EA of ITA

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‘qualifying purpose’, in relation to the application of the funds derived from the issue of a preference share, means one or more of the following purposes:

[Words preceding paragraph (a) substituted by section 7 of Act 43 of 2014 effective on 1 January 2013]

(a)     The direct or indirect acquisition of an equity share by any person in a company that is an operating company at the time of the receipt or accrual of any dividend or foreign dividend in respect of that preference share, other than a direct or indirect acquisition of an equity share from a company that, immediately before that acquisition, formed part of the same group of companies as the person acquiring that equity share;

[Paragraph (a) substituted  by section 15 of Act 15 of 2016 effective on 1 January 2017, applies in respect of years of assessment ending on or after that date]

(b)     the partial or full settlement by any person of any-

(i)      debt incurred for one or more of the following purposes:

(aa)    The direct or indirect acquisition of an equity share by any person in a company that is an operating company at the time of the receipt or accrual of any dividend or foreign dividend in respect of that preference share, other than a direct or indirect acquisition of an equity share from a company that, immediately before that acquisition, formed part of the same group of companies as the person acquiring that equity share;

[Item (aa) substituted by section 15 of Act 15 of 2016 effective on 1 January 2017, applies in respect of years of assessment ending on or after that date]

 

 (bb)   a direct or indirect acquisition or a redemption contemplated in paragraph (c);

 

 (cc)   the payment of any dividend or foreign dividend as contemplated in paragraph (d); or

 

(dd)   the partial or full settlement, directly or indirectly, of any debt incurred as contemplated in item (aa), (bb) or (cc); or

(ii)     interest accrued on any debt contemplated in subparagraph (i);

(c)     the direct or indirect acquisition by any person or a redemption by any person of any other preference share if-

(i)   that other preference share was issued for any purpose contemplated in this definition; and

(ii)     the amount received by or accrued to the issuer of that preference share as consideration for the issue of that preference share does not exceed the amount outstanding in respect of that other preference share being acquired or redeemed, being the sum of-

 

(aa)   that amount; and

(bb)   any amount of dividends, foreign dividends or interest accrued in respect of that other preference share; or

(d)     the payment by any person of any dividend or foreign dividend in respect of the other preference share contemplated in paragraph (c);

“Market value” definition of section 8C of ITA

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“market value” in relation to an equity instrument-

 

(a)     of a private company as defined in the Companies Act or a company that would be regarded as a private company if it were incorporated under that Act, means an amount determined as its value in terms of a method of valuation –

 

(i)      prescribed in the rules relating to the acquisition and disposal of that equity instrument;

 

(ii)     which is regarded as a proxy for the market value of that equity instrument for the purposes of those rules; and

 

(iii)    used consistently to determine both the consideration for the acquisition of that equity instrument and the price of the equity instrument repurchased from the taxpayer after it has vested in that taxpayer; or

 

(b)     of any other company, means the price which could be obtained upon the sale of that equity instrument between a willing buyer and a willing seller dealing freely at arm’s length in an open market and, in the case of a restricted equity instrument, had the restriction to which that equity instrument is subject not existed;

“Preference share” definition of section 8EA of ITA

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‘preference share’ means any share-

 

(a)    other than an equity share; or

 

(b)     that is an equity share, if an amount of any dividend or foreign dividend in respect of that share is based on or determined with reference to a specified rate of interest or the time value of money;

“Equity instrument” definition of section 8C of ITA

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‘equity instrument’ means a share or a member’s interest in a company, and includes –

 

(a)     an option to acquire such a share, part of a share or member’s interest;

 

(b)     any financial instrument that is convertible to a share or member’s interest; and

 

(c)     any contractual right or obligation the value of which is determined directly or indirectly with reference to a share or member’s interest;

“Operating company” definition of section 8EA of ITA

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‘operating company’ means-

(a)     any company that carries on business continuously, and in the course or furtherance of that business-

(i)      provides goods or services for consideration; or

(ii)     carries on exploration for natural resources;

[Paragraph (a) substituted by section 7 of Act 43 of 2014 effective on 1 January 2013]

(b)     any company that is a controlling group company in relation to a company contemplated in paragraph (a);or

(c)     any company that is a listed company;

“Enforcement right” definition of section 8EA of ITA

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‘enforcement right’ in relation to a share or equity instrument means any right, whether fixed or contingent, of the holder of that share or equity instrument or of any person that is a connected person in relation to that holder to require any person other than the issuer of that share or equity instrument to-

(a)     acquire that share or equity instrument from the holder;

(b)     make any payment in respect of that share or equity instrument in terms of a guarantee, indemnity or similar arrangement; or

(c)     procure, facilitate or assist with any acquisition contemplated in paragraph (a) or the   making of any payment contemplated in paragraph (b);

[Definition of ‘enforcement right’ substituted by section 15 of Act 15 of 2016 effective on 1 January 2017, applies in respect of years of assessment ending on or after that date]