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A Fin24 reader writes:
Massmart Holdings [JSE:MSM] recently released a statement concerning the tax impact of the Walmart deal on Massmart investors.
Can someone please translate the legalese into plain English?
I bought 700 shares in Massmart on March 31 2008.
Amelia Morgenrood, portfolio manager and director of PSG Konsult, responds:
All South Africans are automatically liable for tax when they sell an asset, as outlined in the tax legislation.
Massmart shareholders will therefore be liable for tax for their share of the proceeds of selling shares to Walmart. All shareholders will pay capital gains tax or income tax.
Capital gains tax:
You automatically qualify for capital gains tax (CGT) if you owned the shares for more than three years.
If you owned them for less than three years but had planned to keep them for the long term, you may be able to convince the SA Revenue Service (Sars) to still consider levying CGT – and not tax the shares at your marginal income rate.
If your shares were bought according to a discretionary mandate (through your broker) which specifically outlines that investments are aimed at the long term, and the portfolio was managed accordingly, it will be easier to convince Sars.
Deferred capital gains tax:
Tax legislation allows that you can defer CGT if you were basically forced to sell the shares according to a share scheme arrangement. How to do it: buy the shares back within 90 days from the time the scheme took effect. In your case, the 90 days will be up by September 2011.
That means that you will have to buy back shares on the JSE after they were sold to Walmart. The CGT date will be deferred to when the specific shares are sold in the future.
The base price for CGT will be calculated according to the original share price.
Example:
Original price paid: R56 a share
Price Walmart paid: R148 a share
Effective profit: R92 a share
New price paid: R133 a share (bought on the JSE, June 21 2011)
New base price for future CGT calculation: R133 - R92 = R41.
If you bought the shares back at R133, and you originally bought your shares for less than R15 a share, your new base cost will automatically be zero (the base cost can't ever be less than zero).
However, you will be liable for CGT to make up for this additional amount. If you originally bought Massmart shares for less than R15, and bought them back at R133, a CGT "event" will be triggered.
Example:
Original price paid: R12 a share.
Price Walmart paid: R148 a share
Effective profit: R136 a share
New price paid: R133 a share (bought on the JSE, June 21 2011)
New base price for future CGT calculation: R133 - R136 = -R3 (but this is automatically converted to zero).
CGT for tax purposes: R3 a share
Income tax:
There are no arrangement to shield investors against income tax. Taxpayers who are registered with Sars as traders, or bought the shares to make a quick profit out of the Walmart transaction, will pay income tax at their marginal rate on their profit.
- Fin24
Massmart Holdings [JSE:MSM] recently released a statement concerning the tax impact of the Walmart deal on Massmart investors.
Can someone please translate the legalese into plain English?
I bought 700 shares in Massmart on March 31 2008.
Amelia Morgenrood, portfolio manager and director of PSG Konsult, responds:
All South Africans are automatically liable for tax when they sell an asset, as outlined in the tax legislation.
Massmart shareholders will therefore be liable for tax for their share of the proceeds of selling shares to Walmart. All shareholders will pay capital gains tax or income tax.
Capital gains tax:
You automatically qualify for capital gains tax (CGT) if you owned the shares for more than three years.
If you owned them for less than three years but had planned to keep them for the long term, you may be able to convince the SA Revenue Service (Sars) to still consider levying CGT – and not tax the shares at your marginal income rate.
If your shares were bought according to a discretionary mandate (through your broker) which specifically outlines that investments are aimed at the long term, and the portfolio was managed accordingly, it will be easier to convince Sars.
Deferred capital gains tax:
Tax legislation allows that you can defer CGT if you were basically forced to sell the shares according to a share scheme arrangement. How to do it: buy the shares back within 90 days from the time the scheme took effect. In your case, the 90 days will be up by September 2011.
That means that you will have to buy back shares on the JSE after they were sold to Walmart. The CGT date will be deferred to when the specific shares are sold in the future.
The base price for CGT will be calculated according to the original share price.
Example:
Original price paid: R56 a share
Price Walmart paid: R148 a share
Effective profit: R92 a share
New price paid: R133 a share (bought on the JSE, June 21 2011)
New base price for future CGT calculation: R133 - R92 = R41.
If you bought the shares back at R133, and you originally bought your shares for less than R15 a share, your new base cost will automatically be zero (the base cost can't ever be less than zero).
However, you will be liable for CGT to make up for this additional amount. If you originally bought Massmart shares for less than R15, and bought them back at R133, a CGT "event" will be triggered.
Example:
Original price paid: R12 a share.
Price Walmart paid: R148 a share
Effective profit: R136 a share
New price paid: R133 a share (bought on the JSE, June 21 2011)
New base price for future CGT calculation: R133 - R136 = -R3 (but this is automatically converted to zero).
CGT for tax purposes: R3 a share
Income tax:
There are no arrangement to shield investors against income tax. Taxpayers who are registered with Sars as traders, or bought the shares to make a quick profit out of the Walmart transaction, will pay income tax at their marginal rate on their profit.
- Fin24
