Massmart Holdings Limited v The Commissioner for the South African Revenue Service

Massmart Holdings Limited implemented a share incentive scheme for key management employees through an employee share trust established in 2000. The trust granted share options to employees on Massmart’s instructions and acquired and sold Massmart shares when options were exercised. Between the 2007 and 2013 years of assessment, the trust incurred substantial losses on acquiring and disposing of shares at prices lower than market value. Massmart bore these losses commercially and claimed capital losses of approximately R954 million for CGT purposes. SARS disallowed the losses, contending that any capital gains or losses arose in the trust and not in Massmart. Massmart’s appeal to the Tax Court failed, leading to a further appeal to the Supreme Court of Appeal.

The appeal was dismissed with costs, including the costs of two counsel.

The case clarifies the application of Capital Gains Tax principles to employee share schemes conducted through trusts. It affirms that commercial or accounting losses borne by a holding company do not automatically translate into capital losses for CGT purposes. The judgment underscores the need for a clearly identifiable asset and disposal under the Eighth Schedule and limits attempts to recharacterise trust-related losses as CGT losses of a sponsoring company.