“The Taxation Laws Amendment Act, No 24 of 2011, added the definition of ‘share’ to section 1 of the Income Tax Act, No 58 of 1962,” says Heinrich Louw, an Associate in the Tax Practice at Cliffe Dekker Hofmeyr in a recent article. “With effect from 1 April 2012, a share was therefore defined as ‘in relation to any company, any share or similar equity interest in that company’.”
With effect from 1 January 2013, a share will be defined, in terms of the Income Tax Act, as follows:
Share means “in relation to any company contemplated in paragraph (a), (b), (e) or (f) of the definition of ‘company’, any unit into which the proprietary interest in that company is divided”.
The reference to paragraphs (a), (b), (e) and (f) of the definition of ‘company’ means that locally incorporated companies, foreign incorporated companies, foreign portfolios, a collective investment scheme in participation bonds, securities or property and close corporations are included. It furthermore means that co-operatives and local associations formed to benefit the public are excluded.
In terms of the Companies Act of 2008, a share means “one of the units into which the proprietary interest in a profit company is divided”.
It is also proposed that the definition of “equity share” be amended.
Currently an equity share is defined as “any share in a company, excluding any share that neither as respects dividends nor as respects returns of capital, carries any right to participate beyond a specified amount in a distribution”.
The new definition is to read as follows, “equity share” means “any share in a company unless:
- the amount of any dividend or foreign dividend in respect of that share is based on or determined with reference to the time value of money;
- the issuer of that share is obliged to redeem that share in whole or in part;
- that share may at the option of the holder be redeemed in whole or in part.”
The new definition of “share” will clearly link the definition of “equity share” to common commercial practices that separate ordinary shares from preference shares.