Award of trust beneficiary interests to qualifying employees : application of section 8C

• Record Number: btclq_v9_n1_a3
• Author: Michael Rudnicki
• Date: 01 March 2018
• Published date: 01 March 2018
• DOI: 10.10520/EJC-e3162b73f
• Pages: 9-15

9

© Siber ink

Award of Trust Benef‌iciary

Interests to Qualifying

Employees:

APPLICATION OF SECTION 8C

MICHAEL RUDNICKI

AbstrAct

This article considers the application of section 8C of the income Tax Act 58

of 1962 on yet another alternative arrangement for the benef‌it of employees

and executives. The article considers the application of a ‘contractual right

… the value of which is determined directly or indirectly with reference to a

share…’ in the circumstances where a benef‌iciary right acquired against the

trustees of a trust provides value with reference to the dividends in the relation

to the share(s) acquired by the trust. The article considers the meaning of

‘share’ with reference to the Income Tax Act 58 of 1962, learned authors

and decided case law. The answer is by no means clear. But the proposi-

tion put forward is that a share constitutes a bundle of rights. It is submitted

that the ownership right to a dividend as opposed to the entitlement that

arises upon declaration of a dividend, constitutes part of the ownership rights

attributable to a share and a unit into which the proprietary interest in the

company is divided. A unit is a representative term: there seems to be no

legal value attributable to the word and it may well constitute either the

whole of the proprietary interest in the company or a part of the sum of the

whole of the proprietary interest in the company. If this is so, the conclusion,

it is submitted, must that a benef‌iciary interest of this nature must therefore

constitute an equity instrument for purposes of section 8C.

Introduction

The provisions of section 8C of the Income Tax Act 58 of 1962 (‘the Act’

for the purposes of this article), encompass a web of complexity in so far as

the wording thereof is concerned, and more so in respect of the interpreta-

tion of many of the words and phrases. Section 8C was introduced into the

Act in 2004,1 and was enacted given concerns that the previous legislation

governing the taxation of employee share schemes (section 8A) did not

keep pace with the commerciality of employee share schemes:

1

Inserted by s8(1) of Act 32 of 2004 with effect from 26 October 2004 and appli-

cable in respect of any equity instruments acquired on or after that date, otherwise

than by way of the exercise of any right granted before that date and in respect of

which s8A applies.