Section 9C will dramatically reduce disputes with SARS relating to the disposal of shares

Gerald Seegers, a tax director at PricewaterhouseCoopers, says that the provisions of section 9C of the Income Tax Act, which apply as from 1 October 2007 will greatly reduce the number of costly and time-consuming disputes between taxpayers and SARS, in regard to the taxability of the profits from the sale of shares.

Prior to 1 October 2007, when section 9B applied to the disposal of shares, drawn-out and complex disputes could occur where the shares disposed of were not in JSE-listed companies, or where the taxpayer did not avail himself of the statutory election to be subject to CGT on the profits. In these circumstances, section 9B was not applicable and the complex and somewhat rubbery principles of common law had to be applied to the facts of each case to determine whether income tax or capital gains tax was payable.

In contrast to section 9B, the wider ambit of section 9C applies to the disposal of all shares in companies (except for a few limited categories) and members’ interests in close corporations, and not only to shares in JSE-listed companies as was previously the case. Secondly, under section 9C, the taxpayer is not given any election as to nature of the tax he wishes to pay, CGT versus income tax, as it is predetermined based on the period of holding.

The wide net of 9C means there will therefore be a relatively small range of share disposals that will fall outside its clear guidelines and could possibly give rise to disputes with SARS.

Investors, who are prepared to hold onto shares for at least three years, will be able to sleep easy in the knowledge that their profits on ultimate disposal will be subject to CGT, and not income tax.