Item 6 of Schedule 5 read with regulation 31 of the Companies Act of 2008, deal with the conversion of ordinary par value shares to no par value shares.
There will be no disposal on conversion for the shareholders as contemplated in paragraph 11(1)(a) of the Eighth Schedule to the Income Tax Act, No 58 of 1962.
There will be no receipt or accrual for shareholders under the definition of ‘gross income’ in section 1 of the Income Tax Act, provided that the converted shares are held on revenue account.
Furthermore, the conversion will not be a transfer under section 1 of the Securities Transfer Tax Act, No 25 of 2007.
The draft Taxation Laws Amendment Bill, 2012, proposes to insert provisions regulating the mandatory conversion of par value shares to shares of no par value as required under the Companies Act, 2008. These provisions are to be inserted under section 43 of the Income Tax Act.
Under the proposed section 43, the required conversion of shares under the Companies Act, 2008, will fall under the definition of a ‘substitutive share-for-share transaction’ and will not be treated as a deemed disposal event as the base cost remains the same.