M Family Trust v Commissioner for the South African Revenue Services (13935) [2016] ZATC 8; 79 SATC 266 (14 December 2016)

M Family Trust v Commissioner for the South African Revenue Services (13935) [2016] ZATC 8; 79 SATC 266 (14 December 2016)

The court found that the proceeds from the sale of D Ltd shares were received by the taxpayer and could not be reduced by the amount allegedly embezzled, as paragraph 35(3)(c) of the Eighth Schedule applies only to amounts accrued, not received. The alleged embezzlement was committed by a party unrelated to the transaction for the disposal of the shares, and thus does not qualify for deduction under the relevant provision. The cost of the 12,100,000 share options converted into 1,210,000 shares should be included in the base cost of the shares disposed of, as the options were exercised and not forfeited. The taxpayer was found not to have intentionally evaded tax, but failed to take...

Citation
[2016] ZATC 8
Parties
Appellant: M Family Trust; Respondent: Commissioner for the South African Revenue Service
Court
Tax Court
Jurisdiction
South Africa
Judgment Date
14 December 2016
Case Number
13935
Procedural Posture
Tax Appeal / Final Judgment
Outcome
The appeal is partially upheld. The assessment is referred back to SARS for reassessment in accordance with the court's findings. An understatement penalty of 50% applies. No cost order is made.
Judges
R Allie
Legal Topics
Capital Gains Tax, Base Cost Determination, Understatement Penalty, Bad Debt Deduction, Share Option Conversion
Tax Law Capital Gains Tax Base Cost Determination Understatement Penalty Bad Debt Deduction Share Option Conversion

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Parties

M Family Trust

Appellant

Commissioner for the South African Revenue Service

Respondent

Procedural Posture

Tax Appeal / Final Judgment

Legal Issues

  1. 1 Whether the proceeds from the sale of D Ltd shares may be reduced by the amount allegedly embezzled.
  2. 2 Whether the cost of 12,100,000 share options converted into 1,210,000 shares should be included in the base cost of the shares disposed of.
  3. 3 Whether the taxpayer is liable for an understatement penalty and, if so, at what rate.

Ratio Decidendi

The court found that the proceeds from the sale of D Ltd shares were received by the taxpayer and could not be reduced by the amount allegedly embezzled, as paragraph 35(3)(c) of the Eighth Schedule applies only to amounts accrued, not received. The alleged embezzlement was committed by a party unrelated to the transaction for the disposal of the shares, and thus does not qualify for deduction under the relevant provision. The cost of the 12,100,000 share options converted into 1,210,000 shares should be included in the base cost of the shares disposed of, as the options were exercised and not forfeited. The taxpayer was found not to have intentionally evaded tax, but failed to take...

Court Disposition

The appeal is partially upheld. The assessment is referred back to SARS for reassessment in accordance with the court's findings. An understatement penalty of 50% applies. No cost order is made.

Orders

  • The assessment is referred back to SARS for reassessment, taking into consideration that the proceeds from the sale of D Ltd shares shall not be reduced by any amount relating to possible embezzled funds.
  • The cost of the 12,100,000 share options converted into 1,210,000 D Ltd shares shall be included in the base cost of the shares disposed of.