Abstract
Abstract : Stockbroking entities hold shares as trading stock rather than as capital assets. Shares are sold by these entities as part of their normal trading operations at a profit to clients. In situations where shares held as trading stock are unsold and a dividend is declared, stockbroking entities receive the dividend. This results in a portion of the expenditure being non-deductible in terms of s23(f) of the Income Tax Act No 58 of 1962 (hereafter “the Act”). The application of s23(f) to stockbroking entities creates a problem as it results in a limitation of expenditure where incidental dividends are earned. No consideration is given to the fact that stockbroking entities hold shares as trading stock and sell those shares to clients at a profit. This study applied a doctrinal research method to conduct a systematic exposition of s23(f) of the Act by using case law. The objectives of the study were to investigate whether the disallowance of stockbroking expenditure in terms of s23(f) of the Act is appropriate where the core business of stockbroking entities is the buying and selling of shares at a profit. Secondly, the study considered the example of stockbroking entities in India and investigated the treatment of expenditure incurred by entities which held shares as trading stock. It was ascertained whether there were any principles from the Indian tax court judgements which could be implemented by South Africa. The study revealed similarities and differences in the treatment of expenditure incurred by stockbroking entities in South Africa and India. Legislation and court cases in the two countries were presented to demonstrate the deductibility principles where stockbroking entities earn dividends on shares held as trading stock. The focus was on principles which could be used to provide guidelines from which stockbroking entities could determine the deductibility of expenditure where dividends received were incidental. Recommendations were then made for South African legislation based on the findings of the treatment applied in India.
M.Com. (International Taxation)