Abstract
Broadly, section 8C seeks to tax employees at revenue rates (as opposed to lower rates
attributable to, for instance, dividend income or capital gains) on certain amounts arising
in the context of the ownership of shares or instruments deriving their value from shares
(i.e. "equity instruments" as defined in section 8C). This is to ensure that certain
employees (such as executives or top management) are not able to obtain advantageous
tax rates through structuring, when rank and file employees are fully subject to tax at
ordinary income tax rates on their full cash salaries.
Paragraph (c) of the "equity instrument" definition was introduced into section 8C with the
purpose of ensuring that employees cannot avoid the consequences of section 8C by
interposing an intermediary entity between themselves and the shares to which their
incentives or remuneration are linked. In terms of paragraph (c) of the "equity instrument"
definition, the ambit of section 8C was extended to include “any contractual right… the
value of which is determined directly or indirectly with reference to a share".
Using a doctrinal research method, this study considers the application of paragraph (c)
of the "equity instrument" definition in the context where an employee receives a
contractual right, the value of which is derived from shares as well as non-share related
assets. Based on the wording of section 8C, read in the overall context and purpose of
the provision, an interpretation where section 8C either applies fully to a contractual right
(where the majority of the assets are shares) or not at all (where the minority of the assets
are shares) seems to best marry all of the relevant factors.