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What tax applies if I sell broad-based employee share-plan shares within five years?
What tax applies if I sell broad-based employee share-plan shares within five years?
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Direct answer
If a qualifying equity share, right or interest acquired under a broad-based employee share plan is disposed of within five years of grant, SARS says PAYE must be deducted from the gain. The stated exceptions are an exchange for another qualifying equity share, the employee's death and insolvency. SARS says the employer calculates the PAYE like tax on an annual payment and reports the gain under code 3717.
This rule applies to qualifying shares and a gain. It is not a rule that every employee share sale has PAYE.
What this means in practice
The important date is grant, not necessarily the date the share appears in your investment account. Keep the signed grant document and the transaction evidence. A sale, transfer, exchange or other disposal can need review before settlement, especially if the plan administrator asks for payroll information.
The employer or plan administrator needs to confirm whether the share is qualifying and whether an exception applies. An exchange can have special treatment only where it is for another qualifying equity share. Do not treat any share swap as exempt. Death and insolvency are also listed exceptions, but their documents and timing matter.
PAYE on the gain does not end every possible tax question. This article is about the section 8B employment-related PAYE event. It does not calculate your gain, give investment advice or determine later capital-gains treatment outside the stated framework.
Step-by-step
- Collect the plan documents.
Keep the plan rules, grant notice, employee communications and evidence that identifies the qualifying share, right or interest.
- Confirm the grant date.
Record the actual grant date and calculate whether the proposed disposal is within five years. Ask the plan administrator if the record is unclear.
- Identify the transaction.
Keep the sale order, contract, exchange terms, proceeds statement and any broker confirmation. Do not call a transaction an exchange without checking the terms.
- Ask about exceptions.
Request written confirmation of whether the employer considers an exchange, death or insolvency exception relevant. Do not make this determination from a payroll description alone.
- Check payroll calculation and certificate.
SARS says the employer calculates PAYE on the qualifying gain as for an annual payment. Compare the payroll record and IRP5 or IT3(a), including code 3717, with the plan and sale documents.
- File from the corrected source data.
Check the prepopulated ITR12 against the certificate. If the source data is wrong, request a correction from the employer or plan administrator and keep the correspondence.
Documents and records to keep
- Plan rules, grant date and qualification confirmation.
- Sale, exchange or disposal agreement.
- Consideration and proceeds statements.
- Payroll calculation and IRP5 or IT3(a).
- ITR12, assessment and correspondence.
Important limits and exceptions
The five-year period and exceptions are narrow. The guide refers to a qualifying equity share acquired under a broad-based employee share plan and a gain on disposal. It does not say all scheme shares, all transfers or all losses follow this treatment.
An exchange, replacement instrument, restricted share, foreign plan or trust arrangement can need different analysis. Do not attempt to calculate a gain from a share price without the actual consideration, proceeds and plan terms.
When to get tailored advice
Get tailored advice before a sale if the share is unlisted, the plan includes restrictions or options, the transaction is an exchange, or your employer does not explain its code 3717 entry.
TaxProof can help organise the grant, sale and certificate records for review. We cannot calculate an individual share-plan tax result from incomplete records.
Related TaxProof guides
- Employer IRP5 and EMP501 guide
- When are broad-based employee share-plan shares tax-free on acquisition? (B04-IND-007)