MR S v Commissioner for Sars
| Jurisdiction | South Africa |
| Judge | R D Claassen J |
| Judgment Date | 21 October 2010 |
| Docket Number | 12886 |
| Court | Tax Court |
| Hearing Date | 21 October 2010 |
| Citation | 2013 JDR 0338 (Tax) |
R D CLAASSEN J:
1.
The issue in this appeal turns on the question of whether the shares that Appellant bought in the 2008 tax year were trading stock or a capital asset.
2.
The facts are not in dispute, only the inferences to be drawn therefrom. The uncontested facts have been clearly set out by the Respondent's
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counsel Mr Xulu in his heads of argument and it is convenient to quote them here, with a few minor amendments of my own:
The taxpayer during the year of assessment in dispute was employed by the N Group Holdings as a Director.
N introduced a scheme known as the N Employees Share Incentive Scheme. The purpose of the scheme was to reward and retain the best performing employees.
In furtherance of the objectives of the employees share incentive scheme:
during the calendar year 2003 the appellant was issued with 100,000 share options. These options duly vested to the appellant in 2006. These share options were issued to the appellant for R2.67.
Further, during 2004 the taxpayer was issued with a further 75,000 share options by his employer N, which could be exercised in tranches of 20% (i.e. 15000 per year) per year thereafter, starting in June 2006. These
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share options were offered and issued to the appellant for R4.36.
During May and June 2007 the appellant exercised his rights in connection with the share options:
On 15 May 2007 the acquired 100,000 shares which options were issued to him in 2003 and also acquired one tranche of 15,000 issued to him in 2004; and
On 1 June 2001 the appellant acquired a further tranche of 15,000 shares that were issued to him in 2004. The appellant effected a cash based exercise, in terms of which the appellant bought the share options and retained the shares.
On the acquisition dates, the market value or share price was R14.68 and R15.58 respectively.
The market value of the shares, at the end of the 2008 year of assessment, declined and was trading at R9.57 per share. The appellant in the 2008 year of assessment, in light of the
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decline in the share price, took a view that the shares constitute 'trading stock' in his hands.
As consequence of the aforementioned view, the Appellant took the market values of the shares at the acquisition date as (R14.68) and (R15.58) respectively as representing the balance of the opening stock and took the market value at the end of the 2008 tax year (R9.57) as the closing balance of the trading stock. As consequence thereof, he claimed as a notional deduction, an amount totalling R677.800 being the difference between the listed share price on the acquisition date (May & June 2007) and the share price at the end of the 2008 tax year.
SARS disallowed the claim for the deduction of the said amount on the basis that: the Appellant did not carry on a trade as a share dealer and accordingly; the appellant did not incur any loss; and the shares were not trading stock. Further, SARS contended that even if it were to be held that the shares constituted trading stock the values that must be taken into account is the cost price / amount actually paid for the shares at the acquisition date (R2.54 and R4.36) and the
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values at the end of the tax year, and accordingly the Appellant did not incur any loss.
Pursuant to the disallowance of the objection, the Appellant lodged an appeal to the disallowance of the objection. The Appellant relied on the same grounds as relied on in his objection to the assessment.
On 29 November 2009 this appeal served before the Tax Board sitting at Megawatt park. The Chairperson of the Tax Board, having considered the evidence and...
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