Hybrid equity instruments : redemption versus repurchase

• Published date: 01 June 2018
• Record Number: btclq_v9_n2_a3
• Author: Leani Nortje
• Date: 01 June 2018
• DOI: 10.10520/EJC-f566ef386
• Pages: 9-12

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Hybrid Equity Instruments:

REDEMPTION VERSUS REPURCHASE

LEANI NORTJE*

AbstrAct

This article considers a very topical and important issue, does a buy-back of

shares by a company fall within the ambit of section 8E of the Income Tax

Act. The author notes that section 8E is of application where certain rights of

redemption are provided for in a redeemable share scenario.

Having considered the dicta in the case of A (Pty) Ltd v Commissioner for

SARS, the company law provisions that apply in the case of redemption and

buy-back, and the various meanings of the two terms, it is concluded that

it is arguable that where shares are repurchased as opposed to redeemed,

the provisions of section 8E should not f‌ind application as a repurchase is a

separate and distinct event from a redemption which is the event contem-

plated in section 8E.

Introduction

Section 8E of the Income Tax Act 58 of 1962 (‘the Act’) deems a share to be

a hybrid equity instrument if certain requirements are met, with the result

that otherwise exempt dividends paid in respect of that share are deemed

to be fully taxable income.

‘Share’ is def‌ined in section 1(1) of the Act as —

‘… in relation to any company, any unit into which the proprietary interest in

that company is divided’.

‘Hybrid equity instrument’ is def‌ined in section 8E of the Act, inter alia, as:

‘(a) any share, other than an equity share, if —

(i) the issuer of that share is obliged to redeem that share in whole or in

part; or

(ii) that share may at the option of the holder be redeemed in whole or in

part,

within a period of three years from the date of issue of that share;

(b) any share, other than a share contemplated in paragraph (a), if —

(i) (aa) the issuer of that share is obliged to redeem that share in whole or

in part within a period of three years from the date of issue of that

share;

(bb) that share may at the option of the holder be redeemed in whole

or in part, within a period of three years from the date of issue of

that share; or

(cc) …

* Senior Associate, Webber Wentzel.