The following examples that are given by the South African Revenue Service (SARS) in its Interpretation Notes should be carefully perused by South Africans who are working outside South Africa.<\/p>\n
Example \u2013 Meaning of the \u201creward\u201d and \u201clock-in\u201d period<\/strong><\/p>\n Facts:<\/em><\/p>\n On 1\u00a0May\u00a02013, X, an employee of a South African holding company, acquired shares from the South African company by virtue of employment. Under the agreement, X was not permitted to dispose of the shares until 1\u00a0May\u00a02016. The shares were granted both for exceptional performance by X during the company\u2019s previous financial year (1\u00a0May\u00a02012 to 30\u00a0April\u00a02013) and as an incentive to retain X\u2019s services during the lock-in period.<\/p>\n Result:<\/em><\/p>\n The following periods are relevant to determine the sourcing period of the gain:<\/p>\n The sourcing period runs therefore from 1\u00a0May\u00a02012 to 30\u00a0April\u00a02016, since under the agreement the shares were granted to X for both as a reward for exceptional performance during the company\u2019s previous financial year and as an incentive to retain X\u2019s services during the lock-in period.<\/em><\/p>\n The location of services rendered during both the \u201creward\u201d period and the \u201clock-in\u201d period must be taken into account when determining the period of apportionment of the gain under section 10(1)(o<\/em>)(ii).<\/p>\n The gain is deemed to have accrued evenly, and must therefore be apportioned evenly, over the period that the services were rendered.<\/p>\n The sourcing period for section 8C gains will, depending on the circumstances, be as follows:<\/p>\n Once the sourcing period of the gain is determined and the employee has qualified for the section 10(1)(o<\/em>)(ii) exemption, the exempt portion must be calculated based on the following apportionment method:<\/p>\n Working days outside the Republic in the sourcing period \u00d7 section 8C gain total working days in the sourcing period = exempt portion of the gain under section 10(1)(o<\/em>)(ii).<\/p>\n Weekends, public holidays and leave days are excluded from working days for purposes of this calculation<\/em>.<\/p>\n The \u201csourcing period\u201d in this formula refers to the \u201creward\u201d period and the \u201clock-in\u201d period that the share gains relate to, as discussed above.<\/p>\n Example \u2013 Apportionment of gains made under section 8C<\/strong><\/p>\n Facts:<\/em><\/p>\n On 1\u00a0July\u00a02009, DG, an employee of a South African holding company, acquired 5\u00a0000 shares (at R5 each) from the South African company by virtue of employment. Under the agreement, DG was not permitted to dispose of the shares until 1\u00a0July\u00a02014. The shares were granted solely to retain DG\u2019s services. DG rendered services to a Nigerian subsidiary company during the period 1\u00a0February\u00a02011 to 31\u00a0January\u00a02013. DG met the 183 day and 60 continuous day tests for this entire period, and thus any remuneration earned for services rendered outside the Republic during that period qualifies for exemption under section 10(1)(o<\/em>)(ii). DG was in Nigeria and rendered services for a total of 460 actual working days during that qualifying period. DG also rendered services outside the Republic during the lock-in period but outside any qualifying period as follows:<\/p>\n On 1 July 2014, when DG became entitled to dispose of the shares, they vested under section 8C, and had a market value of R43 per share. DG therefore made a gain of R190 000 [5\u00a0000 \u00d7 (R43 \u2013 R5)]. To simplify illustration in this example, any leave days taken are ignored.<\/p>\n Result:<\/em><\/p>\n The portion of the gain made by DG on the vesting of the equity instruments that relates to services rendered outside the Republic during the qualifying period of 12 months is exempt from taxation under section 10(1)(o<\/em>)(ii). The exempt portion must be calculated as follows:<\/p>\n Working days outside the Republic for the sourcing period \u00d7 section 8C gain total working days for the sourcing period = exempt remuneration under section 10(1)(o<\/em>)(ii) = 460\/1\u00a0250 \u00d7 R190\u00a0000 = R69\u00a0920. The balance of the section 8C gain of R120\u00a0080 remains taxable in South Africa. There are a total of 1\u00a0250 working days during the sourcing period, being from 1\u00a0July\u00a02009 to 1\u00a0July\u00a02014. The gain is deemed to be spread evenly over this period. The gains attributable to periods where services were rendered outside the Republic, but that do not fall within a qualifying 12 month period, being the periods of 1 to 30\u00a0October\u00a02009 and 10\u00a0April\u00a02014 to 26\u00a0May\u00a02014, do not qualify as days outside the Republic under the formula, and the gains attributable to services rendered during those periods remain fully taxable in South Africa.<\/p>\n\n
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