An analysis of certain issues relating to the taxation of equity instruments

Abstract

In this article we examine certain issues associated with Section 8C and other important and frequently encountered related provisions of the Income Tax Act. The issues examined relate to: the difference in tax treatment of restricted and unrestricted equity instruments; possible inequitable tax treatment where an employee receives both an interest free or low interest loan and an equity instrument from an employer and also where a taxpayer receives an equity instrument as trading stock; and the donations tax implications of the donation of a restricted equity instrument. The article does not purport to be an exhaustive analysis of these provisions; rather it discusses certain interesting issues encountered by the authors.

Key Words:

• Section 8A
• Section 8C
• share options
• restricted equity instruments
• unrestricted equity instruments
• Paragraph 11(5) of the Seventh Schedule
• Section 58(2)