On 17 August 2015 the South African Revenue Service (SARS) issued Binding Private Ruling 203 (Ruling) relating to the question as to whether securities transfer tax (STT) would be payable on the renunciation of a usufruct over shares.
The Ruling specifically dealt with the interpretation of sections 1, 2 and 5 of the Securities Transfer Tax Act No. 25 of 2007 (STT Act).
In respect of s1 of the STT Act, the Ruling pertained to the definitions of "security" and "transfer". Section 1 of the STT Act defines a "security" as:
- any share or depository receipt in a company; or
- any members interest in a close corporation, excluding the debt portion in respect of a share linked to a debenture.
Section 1 of the STT Act defines the term "transfer" as including the "transfer, sale, assignment or cession, or disposal in any other manner, of a security or the cancellation or redemption of that security", but excluding:
- any event that does not result in a change in beneficial ownership;
- any issue of a security; or
- a cancellation or redemption of a security if the company which issued the security is being wound up, liquidated or deregistered or its corporate existence is being finally terminated.
The facts in the Ruling were as follows:
- The applicant was a natural person and a South African tax resident (the Applicant).
- The co-applicants were three separate trusts formed in South Africa, and therefore South African tax residents (the Co-Applicants).
- The Applicant was married to N, who is deceased.
- The last will and testament of N bequeathed a share portfolio (the Shares) to the three children of the Applicant and N (the Children), with a life-long usufruct in favour of the Applicant.
- The Children each transferred their bare dominium in the Shares to the respective Co-Applicants.
- The Shares were administered by a broker in one account in the Applicant’s name.
The following transaction was proposed by the applicants:
- The Applicant would renounce the usufruct over the Shares.
- Full ownership of the Shares would vest in the respective Co-Applicants.
- The Shares would be transferred by the broker into accounts in the names of each of the Co-Applicants.
It should be noted that the Ruling does not set out the arguments on which the applicants relied in their application for the Ruling. However, it was ruled that STT would not be payable by the Applicant on the renunciation of the usufruct over the Shares.