Employee share incentive schemes

Employer companies generally implement employee share incentive schemes to retain and incentivise their employees by enabling the latter to receive indirect benefits from the appreciation in the growth of the company. This is an effective way to offer benefits to employees and encourage their participation and loyalty of employees.

Even though these schemes are generally equity-settled, an employer can also elect to implement a cash-settled scheme or even a hybrid scheme wherein the directors are afforded the discretion to award either shares or cash. It is important to determine what benefits should be received when considering these schemes.

In terms of an equity-settled scheme, employees will either receive shares upfront (subject to certain restrictions), or they can receive a right to shares upon vesting (i.e. when the restrictions have been complied with). In both instances, the employees will receive (unrestricted) shares in the employer (or holding company) when the restrictions (e.g. a three year employment period) have been complied with.

Section 8C of the Income Tax Act No 58 of 1962 seeks to tax the gain in respect of the “vesting” in a year of assessment of an “equity instrument” acquired by an employee if the employee acquired such an equity instrument:

  • by virtue of his employment or the office of a director of any company or from any person by arrangement with the employee’s employer; or
  • by virtue of any “restricted equity instrument” held by that employee.

In general, section 8C seeks to include any gain or loss made upon the vesting of an equity instrument in a taxpayer’s taxable income provided that the share is acquired by virtue of employment or holding of any office of director. A further distinction is drawn in section 8C between unrestricted and restricted equity instruments. The former is deemed to vest on the acquisition date, whilst the latter is deemed to vest in a taxpayer when all the restrictions in respect of the equity instrument cease to have an effect, or immediately prior to a disposal thereof by the taxpayer, whichever is the earliest

Depending on whether the rights granted under the scheme are restricted or not, the tax consequences arising for the employee will become due when the shares are granted to the employee and no restrictions apply anymore. Accordingly, the gain to be taxed is calculated as the value of the benefits which the employee received in terms of the underlying scheme, less the consideration given by the employee (if any) to acquire those benefits.

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.