SARS has clarified the income tax and capital gains tax treatment of cash grants to an employee share incentive trust and the subsequent vesting of shares under Binding Private Ruling 429, issued on 14 August 2026.
The South African Revenue Service (SARS) has set out the income tax and capital gains tax treatment of cash grants made to an employee share incentive trust and the subsequent vesting of shares in qualifying employees under Binding Private Ruling 429 (BPR 429) issued on 14 August 2026.
The ruling covers a resident company, its eight resident subsidiaries and a resident discretionary trust used for a forfeitable share award scheme for senior management employees. BPR 429 is valid until 31 July 2034.
Cash grants and share awards
Under the proposed arrangement, the applicant will make annual cash grants to the trust from 2026 to 2031 for qualifying employees of the applicant and its subsidiaries.
The applicant will recover from each subsidiary the portion of the grant relating to that subsidiary’s qualifying employees. The trust will use the funds to acquire shares in the applicant on the open market or subscribe for newly issued shares at current market value.
The trust will then make annual share awards to qualifying employees. The shares will be transferred to employees for nil consideration when they vest between 2029 and 2034.
Tax treatment for employing companies
SARS ruled that the applicant may deduct under section 11(a) the portion of the cash grant relating to its own qualifying employees.
Each of the eight subsidiaries may similarly deduct the portion attributable to its respective qualifying employees. The deductions are subject to the prepayments limitation provisions of section 23H.
Tax treatment for the trust
The cash grants received by the trust must not be included in its gross income.
SARS determined that the transfer of shares to qualifying employees constitutes a disposal under paragraph 11(1)(d). The disposal takes place when the shares vest in the employees, as contemplated in paragraph 13(1)(a)(iiB).
The ruling also confirms that paragraph 20(3)(b) does not apply to expenditure incurred by the trust to acquire the shares.
In addition, paragraph 38(1) does not apply to the transfer of shares to employees. Any capital losses determined by the trust are not restricted under paragraph 39(1) because of the exception in paragraph 39(4).
BPR 429 is binding only between SARS and the applicant and co-applicants concerned and does not constitute a practice generally prevailing.
