Buyback tax rules: a sledgehammer, where a scalpel would do better
Experts say plans to do away with tax breaks on share buybacks will affect transactions done for legitimate commercial reasons
Treasury plans to do away with tax breaks for corporate share buybacks, in a move described as "overly zealous" and "too far-reaching". Treasury has proposed changes in the draft Taxation Laws Amendment Bill, saying tax planning using share buybacks has become prevalent due to the fact that company-to-company dividends are exempt from dividend tax. Clive Sharwood, tax consultant at Deloitte, says listed companies will often use share buybacks when they feel their shares are undervalued. "The shares can be housed in a subsidiary (maximum of 10% of the shares) or if they are bought back by the company the shares are cancelled." He explains that share transactions are treated either as a return of "contributed tax capital" — in which case it is called a buyout — or as a dividend, when it is called a buyback. A return of contributed tax capital would be proceeds on a sale and attract capital gains tax of 22.4%, whereas a dividend is exempt from tax. "If a company is selling shares by en...
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.
Subscribe now to unlock this article.
Support BusinessLIVE’s award-winning journalism for R129 per month (digital access only).
There’s never been a more important time to support independent journalism in SA. Our subscription packages now offer an ad-free experience for readers.
Cancel anytime.
Questions? Email helpdesk@businesslive.co.za or call 0860 52 52 00. Got a subscription voucher? Redeem it now.