Types of Share Awards

Binding Class Ruling 069 was issued on 23 October 2019 and relates to the tax implications that arise in respect of proposed employee share schemes (“the Schemes”) in terms of the Income Tax Act and the Eighth Schedule.[1]

The applicant is a listed resident company that intends to implement new share incentive schemes, which will be administered by two resident employee share ownership trusts. The participants of the Schemes are employees within the applicant’s group of companies.

The employer companies will make contributions to the trusts to fund the acquisition of shares and pay for expenses relating to the administration of the Schemes.

This discussion focuses on the granting of forfeitable share awards as provided for in the Schemes.

The participant of these awards will become the beneficial owner of the shares from the acceptance date until the share is settled and will, therefore, enjoy the dividend and voting rights, in respect of the share. However, the right to dispose of the shares and the right to participate in special distributions are restricted until the vesting date.

The rules provide for two types of forfeitable share awards — an annual discretionary award and an on-appointment award. The difference between the two being the date on which the shares are awarded and the section 8C vesting date.

On-appointment awards can be made to new appointments at a specified grade level and can vest in tranches or at a certain point. The annual discretionary awards are made on special nomination and are based on specific criteria and vest in full on the third anniversary.

The benefits can furthermore terminate if the conditions are not met during the vesting period or if employment is terminated due to an ineligible termination reason (such as resignation or fraudulent conduct).

The shares forming part of these awards must be registered in the name of the trusts until settlement and thereafter in the name of the participant.[2] Once the shares have vested, the risk of forfeiture will terminate.

In terms of the ruling, section 23H will apply to contributions made by the employer companies to the trusts in respect of these share awards.[3]

The vesting of the shares on the award date will be regarded as disposal under paragraph 11(1)(d). However, the time of disposal will be deferred until the date that the shares vest for section 8C purposes, that is only after all restrictions have been lifted.[4]

Also, no consideration is payable by the participant on the vesting of these awards, which is considered an arm’s length consideration, and paragraph 38 will not apply.

[1] No. 58 of 1962

[2] Excluding any shares sold to satisfy any employees’ tax or withholding obligations.

[3] The years prior to the allocation of the share award must not be taken into account in determining the apportionment method provided for under section 23H(1).

[4] Paragraph 13(1)(a)(iiB)

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)




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IC Marais

Professional experience:

IC Marais is a certified CA (SA) with public sector and private sector technical knowledge based on 5 years’ Public Sector accounting, auditing and financial management experience and 5 years audit, tax and accounting experience. Detailed knowledge of private and public sector accounting and auditing standards (GRAP, IPSAS, IFRS, IAS, ISA) and public sector financial legislation (MFMA, etc.)

He enjoys the outdoors, hunting and fishing.



Professional experience:

In 1995, Schalk started as a trainee at Warner and Newton (which became Moores Rowland in 1997 and then Mazars Moores Rowland in 2007) in Bloemfontein. In 1998, Schalk was appointed as manager at Moores Rowland, where he became a partner in 2003. Schalk received his Postgraduate Certificate in Advanced Taxation in 2006 and in 2009 he received his Certificate in the Administration of Estates.



Professional experience:

Cedric started as a trainee at Warner and Newton (which became Moores Rowland in 1997 and Mazars Moores Rowland in 2007), Bloemfontein, in 1986. After completion of his articles, he joined the Special Investigations Division of the Department of Finance (SA Revenue Services) as a senior inspector from 1990 to 1991.



Professional experience:

Lucha started her career as a tax inspector at the Inland Revenue Department of New Zealand. After this she worked in commerce in Canada, Mexico and the United States.

On her return to South Africa, she completed her CA training contract with us and has been with Newtons ever since. She became a Partner in 2012.

Apart from her CA(SA) qualification she also holds a postgraduate certificate in Advanced Taxation (2005) and has the overall responsibility for training as our Training Officer.