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A Fin24 user is not sure how shares she obtained as part of a bonus scheme at her work will be taxed. She writes:
My question is about a share bonus scheme structured along the following lines:
If you purchase a certain number of shares (for instance 10 shares), and if you are still an employee of the company three years later, you will receive an additional half of the number of shares you originally purchased (in other words 5 shares) and another additional half of the number (another 5 shares) if the company meets its targets.
In summary, I would have purchased 10 shares in 2015 and would (potentially) have 20 shares in 2018.
How would these additional shares be taxed?
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The technical department at the SA Institute of Tax Professionals (Sait) responds:
Unfortunately the facts provided are insufficient to address the question as taxable gains on revenue account from employee share schemes are determined as the difference between the market value of the share and the actual consideration paid by the employee.
Importantly, the value is determined on the date that the share "vests". No facts were provided as to market value, consideration paid or any restrictions applicable.
Vesting does not occur when the share is acquired legally, but rather when all restrictions imposed on the share end, such as any restriction on the share to freely dispose at market value or a restriction that would result in forfeiture of ownership or financial penalty.
If the shares acquired by purchase had any restrictions which were still applicable by 2018, no tax consequences would have resulted on the shares still held as they would not have vested, even though the legal ownership was acquired by the employee.
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If they had no restrictions and were held on capital account, a capital gain or loss will only arise when they are disposed of. Any restricted shares sold in the interim will have the taxable gain included in taxable income as revenue and not as capital.
The tax consequences of the shares obtained (we assume from the employer) as a result of the shares purchased would also depend on whether or not they vested (the restrictions are lifted).
The gain between the time the taxpayer obtained the right to the additional shares and the date of vesting would be gross income for the person if they were obtained from the employer and had restrictions on them.
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