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Proposed amendments to the rules dealing with the taxation of employee-based incentive plans
Taxand South Africa explores proposed amendments to the rules dealing with the taxation of employee-based incentive plans.
The Draft Taxation Laws Amendment Bill of 2016 was released for public comment on Friday 8 July (the “2016 TLAB”). It proposes certain amendments to the rules currently contained in the Income Tax Act No. 58 of 1962 (the “Act”) dealing with employee-based incentive plans.
Some of these proposed changes were foreshadowed by announcements made by the Minister of Finance in the 2016 Budget Speech, namely that:
- Section 8C of the Act will be reviewed to address schemes where restricted shares held by employees are liquidated in return for an amount qualifying as a dividend
- certain dividends in respect of restricted equity instruments are subject to income tax. These taxable dividends will be specifically included in the definition of “remuneration” for employees’ tax purposes
- The Act will be amended to avoid possible double taxation on the acquisition of a restricted equity instrument under both the definition of “gross income” and under section 8C of the Act
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Employers should carefully consider their employees’ tax withholding obligations, as well as the timing and amount of deductions to which they may be entitled in respect of expenditure incurred by them in connection with their employee incentive arrangements.
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