n Business Tax and Company Law Quarterly - Deferred-delivery share incentive schemes - the dragons rejoice, and are disappointed!

Volume 2, Issue 4
  • ISSN : 2219-1585


Deferred-delivery share incentive schemes were very prevalent prior to the introduction of section 8C of the Income Tax Act 58 of 1962 ('the Act') in 2004. It was always a mystery why SARS had never before attacked any of these schemes, as they quite clearly provided a significant 'tax-free' benefit to the participants. That has now changed. SARS has now taken what is no doubt a 'test' case to the Tax Court and has come out victorious (the dragons be pleased), but only half so (the dragons be not so pleased). While the court found that section 8A of the Act applied at the time delivery of the relevant shares acquired pursuant to the exercise of an option granted by the taxpayer's employer to acquire the shares took place (at a time when the shares had increased in value), it also found that SARS could not raise revised assessments prior to 2004 as the 'practice generally prevailing' (section 79(1) of the Act) at that time was not to impose taxation on this basis, but rather on the basis that a tax liability was triggered at the time the taxpayer exercised the option to acquire the shares. While the taxpayers had raised as a defence the doctrine of legitimate expectation, this was not accepted by the court on the grounds that no evidence had been presented to indicate that the taxpayers had relied on any decision by any SARS employee.

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