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18 August 2011. If your intention when purchasing shares is to engage in speculation then you're a share dealer, whereas if your attention is to hold shares as a long-term investment then you're an investor. The more often you trade the more likely you are to be classified as a share dealer. If you're a share dealer then the shares in your hand are classified as trading stock.

Contribution to taxable income

If you, as a share dealer, start the year with R100 worth of shares and during the year you buy a further R20 of shares, and sell R10 worth of shares (which you'd originally bought for R5), your contribution to taxable income would be calculated as follows:

If you'd held the shares you sold for more than 3 years, the the proceeds may be deemed to be capital according to section 9C.

Section 9C of the Income Tax Act

"Circumstances in which certain amounts received or accrued from disposal of shares are deemed to be of a capital nature"

1)        For the purposes of this section—

"connected person" means a connected person as defined in section 1, provided that the expression 'and no shareholder holds the majority voting rights of such company' in paragraph (d)(v) of that definition shall be disregarded; and

"qualifying share", in relation to any taxpayer, means an equity share contemplated in section 41, which has been disposed of by the taxpayer or which is treated as having been disposed of by the taxpayer in terms of paragraph 12 of the Eighth Schedule, if the taxpayer immediately prior to such disposal had been the owner of that share for a continuous period of at least three years excluding a share which at any time during that period was-

a)        a share in a share block company as defined in section 1 of the Share Blocks Control Act, 1980 (Act No. 59 of 1980);

b)        a share in a company which, was not a resident, other than a company contemplated in paragraph (a) of the definition of "listed company"; or

c)        a hybrid equity instrument as defined in section 8E.

2)        Any amount other than a dividend received by or accrued to a taxpayer in respect of a qualifying share shall be deemed to be of a capital nature.

2A)     Subsection (2) does not apply in respect of so much of the amount received or accrued in respect of the disposal of a qualifying share contemplated in that subsection as does not exceed the expenditure allowed in respect of that share in terms of section 12J(3).

3)        The provisions of this section shall not apply to any qualifying share if at the time of the disposal of that share the taxpayer was a connected person in relation to the company that issued that share and-

a)        more than 50 per cent of the market value of the equity shares, contemplated in section 44, of that company was attributable directly or indirectly to immovable property other than—

i)          immovable property held directly or indirectly by a person that is not a connected person to the taxpayer; or

ii)         immovable property held directly or indirectly for a continuous period of more than three years immediately prior to that disposal; or

b)        that company acquired any asset during the period of three years immediately prior to that disposal and amounts were paid or payable by any person to any person other than that company for the use of that asset while that asset was held by that company during that period.

4)        For purposes of this section, where—

a)        any share has been lent by a lender to a borrower in terms of a securities lending arrangement, such share shall for the purposes of the lender be deemed not to have been disposed of by the lender; and

b)        any other share of the same kind and of the same or equivalent quantity and quality has been returned by the borrower to the lender, such share and such other share shall be deemed to be one and the same share in the hands of the lender.

5)        There shall in the year of assessment in which any qualifying share is disposed of by the taxpayer be included in the taxpayer's income any expenditure or losses incurred in respect of such qualifying share and allowed as a deduction from the income of the taxpayer during that or any previous year of assessment in terms of section 11.

6)        Where the taxpayer holds shares which were acquired by the taxpayer on different dates and the taxpayer has disposed of any of those shares, the taxpayer shall for the purposes of this section be deemed to have disposed of the shares held by the taxpayer for the longest period of time.

7)        The provisions of section 22(8) shall not apply as a result of the disposal of any qualifying share.

8)        For the purposes of this section, where a company issues shares to a person in substitution of previously held shares in that company by reason of a subdivision, consolidation or similar arrangement or a conversion contemplated in section 40A or 40B, such share and such previously held shares shall be deemed to be one and the same share if—

i)          the participation rights and interests of that person in that company remain unaltered; and

ii)         no consideration whatsoever passes directly or indirectly from that person to that company in relation to the issued shares.

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