Section 9C of the Income Tax Act is a single-edged sword

Gerald Seegers, a tax director at PricewaterhouseCoopers, says that section 9C of the Income Tax Act applies to the disposal of shares after 1 October 2007, and provides that the profits on the sale of such shares will (with a few stipulated exceptions) be automatically (without any election by the taxpayer) subject to capital gains tax and not income tax if they have been held for at least three years.

However, section 9C does not state the converse. It does not say that if a person sells shares within three years of acquiring them, he or she will automatically be subject to income tax. In other words, a person who sells shares after holding them for less than three years will still be entitled to argue (and will bear the onus of proving) that he is not a share-dealer or speculator, and that the profits ought to be subject to capital gains tax, not income tax.

Consequently, section 9C does not provide absolute certainty on whether CGT or income tax should be levied and is therefore not likely to eliminate all disputes and litigation between taxpayers and SARS in regard to the taxation of the profits on share sales.