Page 77 - Companies & Dividend Tax

Acquisition and Disposal of Shares

Issue or cancellation of shares by a company

• Remember the definition of company includes inter alia a close
corporation. Share as defined in section 1 means any unit into which the
proprietary interest in that company is divided. This means that the
membership interest of a member in a close corporation is also included
in the definition.

• The following normal tax implications arise from the issue or
cancellation of shares:

• The issue or cancellation of shares by a company is not a disposal for the
company for CGT purposes (paragraph 11(2)(b) of the Eighth Schedule), unless
it is a share, option or certificate issued by a resident company in exchange for
shares in a foreign company.
• If a company issues shares in exchange for assets, the company did not incur
any expenditure and therefore no amount would have been deductible in the
absence of any specific legislation. Section 40CA, however, makes provision for
such a case and states that if a company acquires any asset from any person in
exchange for shares, then the company, for the purposes of the Income Tax Act,
is deemed to have actually incurred an amount of expenditure in respect of the
acquisition of the asset equal to the market value of the shares immediately
after the acquisition (section 24BA deals with shares for asset transaction
where the consideration is not at arm’s length).

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