Tax Question

[AJT]

I am hoping some tax expert is able to assist. Let's say I have share options from work to buy 1000 of share "X" at R10. The share is currently trading at R20. I decide to purchase those shares, but not to sell them at this stage, i.e. raise the R10000 for the shares. Do I need to pay tax on the difference between what the share is trading at that time (R20 x 1000 = R20000), i.e. market value of the shares = R20000. If I do need to pay tax right now, will that be CGT or revenue tax?

[geordie1]

no tax due.If you keep shares for 3 years or longer then when you sell tax is capital gains-if less than 3 years then tax is revenue.I am no expert so unsure if date options given is date used to establish when ownwship commenced and hence when tax is of capital or revenue-maybe someone else knows.

[#3]

Well if your INTENTION is to derive dividends or hold for retirement or as savings then only CGT will be payable on date of sale. Its all about your intention which SARS' auditors use to determine whether you are trader or investor. So at the moment there won't be any tax payable, at least that is how I understand it. http://www.sars.gov.za/home.asp?pid=4150&tid=65&s=pubs&show=1260

[olilau]

geordie lad is right. taking up or buying options determines your base cost. ie, whatever you pay plus costs is the base cost. only SELLING/REALISING triggers a tax event. whether that be revenue or capital in nature depends on your intention, or how long you hold the share. if you hold the share longer than 3 years, there is a safe haven of it being deemed capital in nature.

[saash]

Guys - are you sure there is no fringe benefit tax on the discount for the options. When a company gives you a benefit that is cheaper than the market value, you pay fringe benefits tax on the difference between market value and the value the company issued the benefit at. This is the case with cheaper bonds, holliday accomodation and the rest - I'm just not sure that it applies to share options, as I've never administered a share scheme.

[saash]

Oh - and the revenue or CGT part of the answers are fine. The only possible tax event on this acquisition is fringe benefits tax. The other tax only gets triggered on disposal, and you can only determine what the tax is on disposal - lol, sounds like a unisa tax assignment question?

[john_1]

also.. did you pay the R10 they were worth or were you given them. And was it part of a company ownership scheme or part of your renumeration package.. do you have to sell some to fund that R10 now..

[AJT]

Thanks to all for your comments. I agree with the logic of the tax benefit only once the shares were sold and Saash you raised a valid point around the fringe benefit tax; will need to investigate further. John to answer your question, the shares were given to me as part of a share incentive scheme and I can exercise them now, or wait another 7 years, therefore have flexibility. If I exercised all now, I would need to borrow cash - thanks again.

[john_1]

the classic dirrectors move is to sell just enough to cover the cost (purchaes price and tax) then keep the rest for retirement.

[AJT]

the problem then is that I would need to pay income tax. I do not desperatly need the money right now, so want to rather work on getting my timing right. They are blue chip shares, so do not mind buying them and holding on for 10 years...

[john_1]

who do you work for... don't be shy..

[AJT]

ha ha - they are SAB shares and NO, i did not get them for R10...

[john_1]

please drop me a mail. I would like to ask you a question about SAB.. [email protected] ...

[john_1]

yes and they not worth R20 but I tell you what I am happy to take the lot for R55 remember the good old days when the market punished SAB for buying Millers.

[AJT]

Saash - feedback for you - chatted to an accountant friend last night; at the time, the share options were issued at the listed/ trading price, therefore fringe benefit tax should not be a problem..

[john_1]

thats useful, so how long have you had opptions, if you sell after 3 years then surley only capital gain?

[AJT]

options now 3 to 4 years old, but the 3 years count down will only start when the shares are physically purchased. So if i only want to pay CGT, then I have to wait at least another 3 years before actually selling and getting a cash payment, but will more than likely hold them for a lot longer than 3 years... part of the investment portfolio....

[saash]

Ah - cool - thanks

[john_1]

sure agreed... you want to hold on to those till you retire for sure..People are always going to be drinking and beer and hopefully more draught beer in the near future. Thanks once again for the contacts.

[AJT]

Pleasure - hope you come right....