Sale of Share Options on Resignation

This FAQ article is based on tax law for the year ending 29 February 2024.

1. The Problem / Facts

When an employee who was allocated shares in the company during their employment, leaves the company, is the payout considered revenue or capital in nature?

2. Applicable Law 

Section 8A, 8B, 8C of the Act.

3. Application of the Law to the Facts

In terms of section 8A, the revenue gain from shares and options acquired before 26 October 2004, will be included in the employee's income when they exercise their options or sell their shares.

Under a Broad-based employee share scheme, if the shares are held for a minimum of five years, the shares will be regarded as capital in nature and subject to CGT in terms of section 8B.

Shares and options referred to as “equity instruments” acquired on or after 26 October 2004 are subject to section 8C.  A revenue gain or loss arises when the equity instruments vest in the employee. Vesting is when you become the full owner of the share or option without limitations. Vesting is what triggers a gain or loss which should be included in the taxpayer’s income. 

Other than shares and options that are held for a minimum of 5 years in terms of section 8B, the gains and losses of shares and options will be regarded as remuneration in terms of section 8C. The employer will obtain a directive and withhold the PAYE as directed by SARS.


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