What is a share?

A share is a unit of ownership, equity in a company or financial assets often referred to as stock or securities. It represents a portion of a company or asset held by an individual or a group. The value of shares varies depending on external influences on the market.

Guidelines to distinguish the nature of the sale of shares: capital vs revenue

On the sale of shares, the profits/loss must be determined using the general capital versus revenue (Share trading) principles. 

According to section 9C of the Income Tax Act, No. 58 of 1962 (the Act), where shares have been held for a period of at least three years, the amount received in respect of the sale of shares will automatically be deemed to be of a capital nature and any gain would constitute a capital gain. 

Profits on the disposal of shares held for less than three years is not automatically of a revenue nature. The Act does not provide any objective factors to distinguish between capital and revenue gains on share disposals. 

The intention of the person at the stage of purchase, and disposal of such shares, is essential to consider the nature of the profit. What should also be considered is if the person bought the shares to sell it at a profit or to hold it as a long term investment. If shares were purchased and sold for profit-making, gains will be regarded as revenue in nature. The frequency and scale at which a person also buys and sells shares should be considered to determine whether it is of a capital or revenue nature.

Tax consequences of the sale of shares

The tax consequences of the sale of shares therefore relies on determining whether the sale is of a capital or revenue nature.

Where the sale of shares is deemed to be of a revenue nature, the profit will be included in the taxpayer’s gross income and are subject to tax at a higher effective rate compared to that of a capital nature. 

For an individual, the maximum effective rate on a revenue event would be 45% compared to when the sale of shares is deemed to be of a capital nature where the maximum effective rate for that same individual would be 18%.


What is a business

A business can be conducted in any of the following structures:

  • Companies
  • Close Corporations
  • Trusts
  • Partnerships 
  • Sole Proprietors

A common feature in all the above-mentioned structures is that they may all conduct a business for the purpose of generating an income.

One definition of business is the production, distribution, and sale of goods or services for a profit.

Tax consequences of the sale of a business
When selling a business, it is sold as a taxable supply which is subject to value added tax (VAT) at a standard rate of 15%. There is however a provision in the Value Added Tax Act 89 of 1991 (VAT Act) at section 11(1)(e) which allows for the sale of a business at the rate of zero percent, provided certain requirements are met. 

Section 11(1)(e) of the VAT Act provides that the supply of goods and services will be charged with VAT at the rate of 0% where: 

  • the subject matter constitutes an “enterprise” as defined in the VAT Act; 
  • such enterprise is being disposed of as a going concern; 
  • it has been agreed in writing that at the date of conclusion of the agreement, the enterprise will be an income-earning activity on the date of transfer; 
  • all the assets of such enterprise necessary for the continued operation of the enterprise are being sold; and 
  • both the seller and purchaser are registered VAT vendors.

The sale of a business involves the sale of assets each separately. Assets which are necessary for carrying on of that business, should also be sold to the purchaser meanwhile other assets which do not form part of the carrying on of the business are not required to be sold to the purchaser. 

Income tax implications could arise where debt is written off or stock is written down on the sale of the asset to the purchaser as well as where wear and tear is recouped on the sale of assets.

Capital gains tax may also arise when the sale of the company’s assets results in a profit. 
The seller that is a company may also subject to dividends tax if a dividend is declared to shareholders from the profits of the sale of business.



It should be evident that the tax consequences are different for a sale of shares as opposed to a sale of an underlying business. Careful consideration should be given to these differences for any proposed sale transaction where the sale may be conducted via the different options.

Phillip Februarie
Individual Tax Compliance Officer, Johannesburg

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