Author Topic: "Rights Issue" and tax?  (Read 1958 times)

Orca

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"Rights Issue" and tax?
« on: July 26, 2017, 11:05:11 am »
My IRP3b shows the shares I received for a rights Issue under "Corporate Action" and not under "Purchases". How is this treated by SARS? I cannot find anything on this.
I started here with nothing and still have most of it left.

Moonraker

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Re: "Rights Issue" and tax?
« Reply #1 on: July 26, 2017, 12:02:10 pm »
My IRP3b shows the shares I received for a rights Issue under "Corporate Action" and not under "Purchases". How is this treated by SARS? I cannot find anything on this.
Hello Orca,

After a corporate action (i.e. the rights take up), the weighted average cost is adjusted as seen in the example attached. That's all.
I have commented before as to CGT implications but rather than searching will repeat it here..

Rights Issue:

Based on my understanding the rights issue in South Africa will be treated the
same as in the UK. If the shareholder held the rights take-up on capital account
then the client will pay CGT and not Income Tax on the disposal of the rights
take-up. If the shareholder’s intention was to hold the rights take-up as a
capital asset then the disposal of the asset is subject to CGT. Please note that
section 9C in this regard will not apply should the shares be foreign listed
shares. If the intention of the shareholder was to hold the rights take-up as
trading stock then it will be subject to Income Tax and not CGT.

 

Scrip in lieu of dividends:

In general, shareholders normally get an
option to choose between a scrip dividend or cash dividend. When choosing the
scrip it is important to know if the company made the distribution out of
profits or capital. It is also important to qualify whether it is a foreign
dividend, if it is the case it must first meet the SA foreign dividend
definition as per the Income Tax Act. It’s important to distinguish if the so
called scrip dividend is acquired as such or whether a cash amount is provided
to acquire the dividend in lieu of the cash received.

 
In General:

 
Distributed from profits:

-          The scrip will be subject to dividends tax at 15%

-          The scrip will be received at a base cost

-          The scrip will be subject to CGT if client held scrip as capital
asset (what is the intention of the shareholder?)

-          The scrip will be subject to Income Tax if the scrip is held as
trading stock (what is the intention of the shareholder?)

 

Distributed from capital:

-          The scrip will be received with a null base cost,

-          The shareholder will pay CGT on the proceeds of the disposal if held
as capital asset

-          If scrip was held as trading stock the disposal of the scrip will be
subject to Income Tax

« Last Edit: July 26, 2017, 12:31:36 pm by Moonraker »

Orca

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Re: "Rights Issue" and tax?
« Reply #2 on: July 26, 2017, 05:20:59 pm »
Thanks Moon. Our resident tax guru.  :TU:
I started here with nothing and still have most of it left.