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Author Topic: Rights issue taken up and CGT implications  (Read 9458 times)

Moonraker

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Rights issue taken up and CGT implications
« on: December 12, 2015, 10:29:11 am »
Original shares held for 3 years+
Rights taken up for additional shares 10 months ago.
All shares sold.

In the UK the position for tax treatment is :-

Capital Gains Tax: Take Up Rights Issue
If you decide to take up the Rights Issue, it is treated as a "Share Reorganisation" by HMRC and the new shares are added to your existing holding, and are deemed to have been acquired at the same time and as your original share holding.

Can anyone confirm whether the same applies here ? (I think it probably does)
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Orca

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Re: Rights issue taken up and CGT implications
« Reply #1 on: December 12, 2015, 03:32:34 pm »
Section 9C of SARS ITA has not been changed. The 3 year rule will still apply.

The UK has no set rules for Income or CGT. Sporadic share purchases and disposals will by default be seen as CGT.
If you habitually buy and sell shares over time or it is your only source of income, then it would be trading.

Trivia:
The exempt amount for CGT is a whopping R270k pa. in the UK.
In Portugal the holding time to qualify for CGT is 1 year and they only allow the FIFO rule.

« Last Edit: December 12, 2015, 03:37:00 pm by Orca »
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Moonraker

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Re: Rights issue taken up and CGT implications
« Reply #2 on: December 12, 2015, 04:03:20 pm »
Orca, I am talking about take up of rights offer here. Share was held for over 3 years but rights offer taken up before 3 years expired.
Will check with my broker's tax guy, but I think what I said about the situation in UK that: If you decide to take up the Rights Issue, it is treated as a "Share Reorganisation" by HMRC and the new shares are added to your existing holding, and are deemed to have been acquired at the same time and as your original share holding. will be the same here.
Could not find anything in 9(c) about this, only tax treatment of NPL's which I am familiar with.

What is this from 9(c)
Options and other rights to acquire qualifying shares are not equity shares and fall outside section 9C.
« Last Edit: December 12, 2015, 04:26:44 pm by Moonraker »
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Fawkes85

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Re: Rights issue taken up and CGT implications
« Reply #3 on: December 12, 2015, 04:55:05 pm »
How does CGT work for scrip?
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Moonraker

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Re: Rights issue taken up and CGT implications
« Reply #4 on: December 12, 2015, 05:14:51 pm »
Quote from: Fawkes85 on December 12, 2015, 04:55:05 pm
How does CGT work for scrip?
Good question. The answer will probably be the same as for my question regarding shares acquired as a result of a rights offer take up.
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Orca

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Re: Rights issue taken up and CGT implications
« Reply #5 on: December 12, 2015, 07:42:15 pm »
Sorry Moon. I misunderstood your question. I have not yet been in that situation so have not delved into it. I know that you are more knowledgeable on tax matters than I am so I found it quite strange for you to ask that and thought you were consuming SAB stocks.
My apologies.   
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Moonraker

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Re: Rights issue taken up and CGT implications
« Reply #6 on: December 12, 2015, 08:13:01 pm »
I will try to get a definitive answer on Monday and post back. Thanks.
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Moonraker

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Re: Rights issue taken up and CGT implications
« Reply #7 on: January 04, 2016, 11:05:22 am »
Took a while, but this is what I got from my brokers tax dept. in reply to my query. Hope it helps someone.

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

 
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