IN 43: Circumstances in which certain amounts received or accrued from the disposal of shares are deemed to be of a capital nature

IN 43 provides that the first step in determining a person’s income tax liability on the disposal of shares is to determine whether the amount received or accrued is of a capital or revenue nature. Any amount received or accrued of a capital nature is specifically excluded from a person’s “gross income” as defined in section 1(1) unless specifically included.

The distinction between capital and revenue is fundamental to the tax system, but neither concept has proved capable of a satisfactory definition in the Act. The question whether shares are held as trading stock or as an investment will, to a large extent, depend on the intention of the taxpayer.

Despite guidelines laid down by case law, the determination of whether the amount received or accrued on the disposal of a share falls on capital or revenue account is often a contentious matter which can lead to costly and protracted legal disputes. For commentary on the capital versus revenue issue, see the Tax Guide for Share Owners and the Comprehensive Guide to Capital Gains Tax in Chapter 2.

While section 9C eliminates uncertainty over the capital nature of shares falling within its ambit, it does not apply to all types of shares, nor does it apply to disposals of shares within three years of acquisition or returns of capital or foreign returns of capital received or accrued within that period.

IN 43 provides clarity on the interpretation and application of section 9C. Issue 8 of IN 43 has been published by SARS, whilst the previous issue of the IN (issue 7) has been archived.

Issue 8 of IN 43 can be accessed here.   

19/08/2021