Page 81 - Companies & Dividend Tax

Acquisition and Disposal of Shares

Share Dealers

• If the amount received or accrued (proceeds) is “gross income”, the
expenditure in acquiring the underlying shares will be deductible in
terms of section 11(a) or 22(2)(b) because the taxpayer is trading in
shares.

• If the proceeds are treated as “gross income”, the asset will be trading
stock in terms of the definition of “trading stock” and has to be valued
according to section 22. This means that the rules of opening stock,
closing stock, the cost of trading stock and the disposal of trading stock
not in the ordinary course of trade, will apply. In terms of section 22(1),
a person holding shares as trading stock is not allowed to write down its
shares at the tax year-end to market value.

• Section 40C states that if a share has been issued for no consideration
(eg. capitalisation shares) it will deemed to have no value. This means
that if you bought 1 000 shares for R40 000 and there is a capitalisation
issue of 3 shares for every 1 held, the value of the shareholding will be 4
000 shares at R40 000. Note that the capitalisation shares will also not
form part of CTC as defined.

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