In this article we will look at one of the lesser known taxes called Securities Transfer Tax, which is usually synonymous with investment. If you have ever been issued a security, then you may have likely been charged Securities Transfer Tax.
For those of you that may be unfamiliar with what a security is, let’s take a step back and explain this first.
A security is an investment or financing instrument that usually represents:
- An ownership interest,
- a right to share in the issuer’s earnings,
- proof of a debt,
- or a specific right in the distribution of a property.
Securities are issued by a company or government agency and can include shares, bonds, notes, etc. and may be traded in financial markets such as the JSE (Johannesburg Stock Exchange).
A security may however also refer to a member’s interest in a close corporation.
What is Securities Transfer Tax?
Starting from 1 July 2008, Securities Transfer Tax is levied on every transfer of a security at the rate of 0.25%. It applies to the purchase and transfers of listed and unlisted securities.
With the demand for liquid assets increasing, most debt agreements involve the use of collateral that takes two forms: A pledge or an outright transfer.
In the case of an outright transfer of collateral, whenever the transfer is executed during a securities lending transaction, equity securities are subject to both income tax and securities transfer tax.
As an example, when purchasing shares, the Securities Transfer Tax of 0.25% is levied on the value of this transaction, usually before any brokerage fees and VAT.
There are exemptions however in terms of Section 8 of the Securities Transfer Tax Act, 2007 (Act No. 25 of 2007). The Securities Transfer Tax will be exempted if the outright transfer of collateral has no income tax, and securities transfer tax implications arise for collateral arrangements up to a period of 12 months. Listed shares will also not be allowed to be provided as collateral for a period longer than 12 months.
Need more information about taxes that affect you?
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