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The characterisation for South African taxation purposes of gains and losses arising from the use of equity financial derivative instruments
The use of financial derivative instruments has outpaced the development of a comprehensive tax policy framework for these instruments in South Africa. Income character determination relies on common law principles which provide limited certainty within the context of modern portfolio management. Ho...
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| Format: | Thesis |
| Language: | English |
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Department of Commercial Law
2021
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| _version_ | 1867613216659472384 |
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| access_status_str | Open Access |
| author | Smith, Stephen Eugene |
| author2 | Emslie, Trevor |
| author_browse | Emslie, Trevor Smith, Stephen Eugene |
| author_facet | Emslie, Trevor Smith, Stephen Eugene |
| author_sort | Smith, Stephen Eugene |
| collection | Thesis |
| description | The use of financial derivative instruments has outpaced the development of a comprehensive tax policy framework for these instruments in South Africa. Income character determination relies on common law principles which provide limited certainty within the context of modern portfolio management. How the courts will approach character determination for financial derivative instruments within investment portfolios is uncertain. This thesis considers applicable tax legislation and case law in three common law jurisdictions. The United States, the United Kingdom and Australia provide insight into the difficulties associated with formulating legislation in the light of rapid market innovation. The detailed tax code of the United States has proved a less than satisfactory policy approach and the courts have struggled with doctrines of interpretation. Australia and the United Kingdom have followed accounting principles. Simplifying proxies are used in this thesis to help disentangle the analysis from the varied and complex ways in which derivatives can be used in financial transactions. Only equity derivatives are considered within the context of regulated investment portfolios. Insolvency case law following the filing for bankruptcy by Lehman Brothers Holdings Incorporated in 2008 provides authority with which to analyse the nature of standardised derivative contracts used in the markets and the rights therefrom as ‘property'. The researcher argues per Smalberger JA in CIR v Pick ‘n Pay Employee Share Purchase Trust 1992 (4) SA 39 (A) that, ‘transactions involving shares do not differ from transactions in respect of any other property and the capital or revenue nature of a receipt is determined in the same way whether one is dealing with land or shares'. A definition is proposed to incorporate legal attributes of these instruments highlighted in the literature, and interpretive guidance issued by Her Majesty's Revenue and Customs in the United Kingdom is supported for adoption as policy principles aligned with our own common law. There can be no context distinct from the general concepts of law specific to derivatives. Continuity and coherency within a long tradition of case law on capital and revenue characterisation should be maintained and a policy framework developed from this premise. |
| format | Thesis |
| id | oai:open.uct.ac.za:11427/33998 |
| institution | University of Cape Town (South Africa) |
| language | eng |
| last_indexed | 2026-06-10T12:32:37.404Z |
| license_str | Not specified — see source repository |
| provenance_str_mv | Harvested via OAI-PMH from UCTD — University of Cape Town Open Access Repository |
| publishDate | 2021 |
| publishDateRange | 2021 |
| publishDateSort | 2021 |
| publisher | Department of Commercial Law |
| publisherStr | Department of Commercial Law |
| record_format | dspace |
| source_str | UCTD — University of Cape Town Open Access Repository |
| spelling | oai:open.uct.ac.za:11427/33998 The characterisation for South African taxation purposes of gains and losses arising from the use of equity financial derivative instruments Smith, Stephen Eugene Emslie, Trevor Tracy, Gutuza Commercial Law The use of financial derivative instruments has outpaced the development of a comprehensive tax policy framework for these instruments in South Africa. Income character determination relies on common law principles which provide limited certainty within the context of modern portfolio management. How the courts will approach character determination for financial derivative instruments within investment portfolios is uncertain. This thesis considers applicable tax legislation and case law in three common law jurisdictions. The United States, the United Kingdom and Australia provide insight into the difficulties associated with formulating legislation in the light of rapid market innovation. The detailed tax code of the United States has proved a less than satisfactory policy approach and the courts have struggled with doctrines of interpretation. Australia and the United Kingdom have followed accounting principles. Simplifying proxies are used in this thesis to help disentangle the analysis from the varied and complex ways in which derivatives can be used in financial transactions. Only equity derivatives are considered within the context of regulated investment portfolios. Insolvency case law following the filing for bankruptcy by Lehman Brothers Holdings Incorporated in 2008 provides authority with which to analyse the nature of standardised derivative contracts used in the markets and the rights therefrom as ‘property'. The researcher argues per Smalberger JA in CIR v Pick ‘n Pay Employee Share Purchase Trust 1992 (4) SA 39 (A) that, ‘transactions involving shares do not differ from transactions in respect of any other property and the capital or revenue nature of a receipt is determined in the same way whether one is dealing with land or shares'. A definition is proposed to incorporate legal attributes of these instruments highlighted in the literature, and interpretive guidance issued by Her Majesty's Revenue and Customs in the United Kingdom is supported for adoption as policy principles aligned with our own common law. There can be no context distinct from the general concepts of law specific to derivatives. Continuity and coherency within a long tradition of case law on capital and revenue characterisation should be maintained and a policy framework developed from this premise. 2021-09-24T06:21:39Z 2021-09-24T06:21:39Z 2021 2021-09-24T06:18:56Z Doctoral Thesis Doctoral PhD http://hdl.handle.net/11427/33998 eng application/pdf Department of Commercial Law Faculty of Law |
| spellingShingle | Commercial Law Smith, Stephen Eugene The characterisation for South African taxation purposes of gains and losses arising from the use of equity financial derivative instruments |
| thesis_degree_str | Doctoral |
| title | The characterisation for South African taxation purposes of gains and losses arising from the use of equity financial derivative instruments |
| title_full | The characterisation for South African taxation purposes of gains and losses arising from the use of equity financial derivative instruments |
| title_fullStr | The characterisation for South African taxation purposes of gains and losses arising from the use of equity financial derivative instruments |
| title_full_unstemmed | The characterisation for South African taxation purposes of gains and losses arising from the use of equity financial derivative instruments |
| title_short | The characterisation for South African taxation purposes of gains and losses arising from the use of equity financial derivative instruments |
| title_sort | characterisation for south african taxation purposes of gains and losses arising from the use of equity financial derivative instruments |
| topic | Commercial Law |
| url | http://hdl.handle.net/11427/33998 |
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