Abstract
M.Comm.
The subject of the study is the income tax implications arising from options, forwards and
futures. These instruments together with a host of other instruments are
collectively referred to as "derivatives". The option and forward contracts are the most basic
instruments which form the basis of all other derivatives. The study is limited to these
"building blocks" of derivative instruments which are generally used in the financial world
(interest rates, foreign currency, shares) but which may also be used in ordinary buying or
selling of commodities. Therefore the distinction is sometimes made between financial
derivatives and other derivatives. The study includes both types as the principles to be applied
in determining the income tax consequences are the same in both instances. The dissertation
deals with South African tax law and refers to other tax jurisdictions where relevant. The purpose of the study is not to clarify all uncertainties pertaining to the tax treatment of
options, futures and forwards, but to discuss the income tax treatment of these instruments in
the RSA in terms of the general income tax principles, the current relevant income tax
legislation and expected future legislation. A comparison will be made between the general
income tax principles and the current tax legislation and how the principles of current
legislation may be extended in future. Problems and shortfalls will be highlighted in all
instances and suggestions for improvement will be made.