Page 84 - Companies & Dividend Tax

Acquisition and Disposal of Shares

Investors

• Thus, if a person holds an equity share for longer than three years, any gain is to
be capital in nature, irrespective of whether the taxpayer is a share dealer or
not.

• The proceeds will be regarded as being of a capital nature, meaning that the
taxable capital gain has to be included in taxable income according to the
provisions of section 26A and the Eighth Schedule. If a taxpayer previously
deducted the cost of these shares in terms of section 11(a) and thereafter in
terms of section 22(2), the taxpayer has to add back this deduction because the
proceeds do not form part of gross income in terms of section 9C(7). A share-
dealer will not be able to deduct expenditure after holding the equity shares for
three years as it is deemed to be capital in nature. There will still be a
recoupment of expenditure deducted in the first three years if the equity shares
are sold.

• If the holder of shares is an investor, section 23(f) will disallow any deduction of
expenditure incurred to produce amounts that are not “income” as defined in
section 1. Hence, the investor is not allowed to deduct expenditure incurred in
the production of exempt income and income of a capital nature (except for
specific inclusions in gross income).

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