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Share Owners (1) - Coggle Diagram
Share Owners (1)
Capitalisation Issues
-No tax implications for SH or Co.
-Excluded from definition of Dividend & ROC
-BC=Rnil irrespective is SH holds for investment/speculation (s40C)
Rights Issue
-When Co. Issues shares to existing shareholders @ an amount less than MV
Implications for Company
-CTC will increase
Implications for Shareholder
-BC is value of rights issue
Share Buy-Back by Listed Company
-If listed Co buys back its shares in the open market, it will not be a dividend or ROC.
Implications for Company
-Cancel shares bought back & reduce share capital.
-No tax implications
Implications for Shareholder
-SH disposes shares to a broker therefore actual disposal by SH
-Normal CGT calculation
-Proceeds= full amount received
Acquisitions
Company Implications
New Shares Issued
-Share price paid by SH that company receives is the company's CTC
-Subsequent issuing of shares increases company's CTC
Acquires shares from Existing Shareholders
-No implications for the Company
-CTC does not increase
-
Distributions
-A Co can distribute cash &/or assets to its shareholders
DR Share Capital
DR Share Premium
DR RE
DR Other Reserves
CR Bank
CR TS
CR Machinery
Distribution will be classified as either:
-Dividends, or
-Returns on Capital
In -Specie Distribution: Additional Tax Implications
-Irrespective if distribution is a Dividend or ROC, there will be additional tax implications if distribution is funded by the distribution of an asset
-The CREDITS will tell you if they have made an in-specie distribution:
CR Bank (No tax for Co)
CR Trading Stock (Recoupment for Co)
CR Machinery (Recoupment & CGT for Co)
Additional Implications for Shareholder
-Holds in-specie asset for Investment: deemed to acquire @ MV (BC is MV par 75(1)(b))
-Holds in-specie asset for Speculation as TS: s22(4) read with s22(2)(b) & 22(3) SH entitled to O/S deduction equal to MV
Additional Implications for Company
-Trading stock in-specie: Recoupment @ MV (s22(8))
-Capital Asset in-specie: deemed disposal @ MV (par 75(1)(a)) & Possible CGT
-Allowance Asset in-specie: deemed disposal @ MV (par 75(1)(a)) Possible recoupments & CGT
Return Of Capital
-CTC is consideration received by Co from shareholders when shares are issued
-Distribution will be ROC if it reduces the CTC of the company.
Implications for Shareholder
-May have CGT implications
-Was the ROC a result of an:
1) Actual Disposal, or
2) No Actual Disposal
2) No Actual Disposal
-Co. repays share premium to SH, or reduction in par-value of shares
-Par 76B 8th Sch ROC amount must be applied to reduce the BC of the underlying shares. Cap Gain will arise to extent ROC amount exceeds BC.
-ROC=Reduce BC
-ROC Reduced BC to Rnil= Cap Gain
ROC relates to a Pre-Valuation Date Asset:
-Step 1: Par 76B(1)(i) Deemed disposal is triggered. Calculate normal cap gain/loss. Pre-valuation date rules to determine BC. Proceeds= MV of shares.
-Step 2: Par 76B(1)(ii) SH deemed to reacquire asset at new BC. New BC= MV of asset less Cap Gain OR BC= MV of asset plus Cap Loss
-Step 3: Par 76B(2) Reduce new BC with ROC.
-Step 4: Par 76B(4)** If ROC > BC, a Cap Gain is realized
1) Actual Disposal
-Share buy-backs, cancellation/ redemption of shares
-Share buy-back will trigger normal disposal for SH (i.e. normal CGT)
-ROC amount (i.e. reduction in CTC amount) will be proceeds in hands of SH (If on capital account)
-ROC amount will be gross income in hands of SH (if held on revenue account)
-Redemption/ cancellation of shares will be an actual disposal in hands of SH (i.e. normal CGT implications)
-
CTC
Starting CTC: xxx
Plus: Consideration for issue of shares: xxx
Less: Transfer of CTC to SH: xxx
CTC: xxx
-Tainted Capital= cap issues that took place before 1 Jan 2011 (will be provided)
-Co. becoming an SA resident on/after 1 Jan 2011: MV of foreign Co. shares deemed to be CTC.
-CTC is company level, per class of share NOT per SH
-CTC will take place when there is a share buy-back, or cancellation/redemption of shares, or a repayment of share premium.
-Distribution must be authorised by directors before it is seen as ROC
Anti-Avoidance Proviso
-Co. makes a distribution out of CTC NOT in relation to each SH's shareholding, then CTC distributed will be allocated pro-rata
-CTC x # Shares held by SH / Total # shares in Co. for that class
-Example Pg 16 in Module
CTC Roll-Over Relief
-Permitted where subdivision/ consolidation of shares in certain reorganization transactions
-Applies to convertible shares
-Example Pg 14 in Module
Dividends
-All distributions are dividends unless the distribution results in the reduction of CTC (i.e. a ROC)
-
Implications for Company
-Co may need to withhold dividends tax @ 20% & pay it to SARS
-If dividend is in-specie, Co will be liable to pay WHT