| Fri 16 Nov 2007, 12:40 | | CNL - Control Instruments - Taxation Consideration |
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CNL
CNL
CNL - Control Instruments - Taxation Considerations Regarding The
Unbundling Of Telimatrix Limited Shares
CONTROL INSTRUMENTS GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1964/003987/06)
JSE Share Code: CNL
ISIN: ZAE000001665
("Control Instruments" or "the Company")
TAXATION CONSIDERATIONS REGARDING THE UNBUNDLING OF TELIMATRIX LIMITED SHARES
Introduction
1. Control Instruments shareholders are referred to the circular dated
13 September 2007 ("circular") setting out the details of the listing of
TeliMatrix Limited ("TeliMatrix") and the subsequent unbundling of the
TeliMatrix shares by Control Instruments. TeliMatrix was listed and
commenced trade on the JSE Limited ("JSE") with effect from the opening
of business on Monday 12 November 2007. The TeliMatrix shares were
unbundled by Control Instruments on the same day and the settlement of
the unbundling entitlement will be credited to dematerialised
shareholders` accounts or posted to certificated shareholders on Monday,
19 November 2007.
2. The purpose of this announcement is to provide a summary of the taxation
implications of the unbundling of the TeliMatrix shares by Control
Instruments.
3. This summary of the taxation implications of the unbundling serves as a
general guide and is not intended to constitute a complete analysis of
the tax consequences, in terms of the Income Tax Act No 58 of 1962 ("the
Act"), to the Control Instruments ordinary shareholders as a result of
the unbundling of the TeliMatrix shares by Control Instruments. It is
not intended to be, nor should it be considered to be, legal or tax
advice.
4. Control Instruments and TeliMatrix and their advisors will not be
responsible towards ordinary shareholders in respect of the tax
consequences of the unbundling transaction under South African law, laws
of the jurisdiction of their residence, and any tax treaty between South
Africa and their country of residence
5. Control Instruments` ordinary shareholders should therefore consult
their own tax advisors about the tax consequences of the unbundling on
their personal tax positions.
6. The unbundling by Control Instruments was, for tax purposes, effected in
terms of section 46 of the Act. The South African tax implications for
Control Instruments` ordinary shareholders, as set out in the provisions
of section 46 of the Act, have been summarised below.
South African tax considerations for shareholders
7 In terms of section 46 of the Act, the unbundling will have the
following South African tax implications for Control Instruments`
ordinary shareholders:
7.1 Any TeliMatrix shares acquired in terms of the unbundling by a Control
Instruments ordinary shareholder that is a company, must be deemed not
to be a dividend accrued to such company for the purposes of section
64B(3) of the Act, irrespective of the reserves utilised for the
distribution. Consequently, the Control Instruments ordinary
shareholders (being companies) will not obtain any STC credits as a
result of the unbundling.
7.2 A Control Instruments ordinary shareholder acquiring TeliMatrix shares
in terms of the unbundling must be deemed to have acquired both the
Control Instruments ordinary shares and the TeliMatrix shares at a
total cost equal to:
* where the Control Instruments ordinary shares were held by that
shareholder as trading stock, the amount taken into account by the
shareholder in respect of those Control Instruments ordinary
shares, as contemplated in section 11(a), section 22(1), or section
22(2) of the Act; or
* where the Control Instruments ordinary shares were held by that
shareholder as capital assets, the expenditure in respect of those
shares allowable in terms of paragraph 20 of the Eighth Schedule to
the Act, or, where applicable, the market value of those shares
determined by that shareholder as contemplated in paragraph 29(4)
of the Eighth Schedule to the Act. Control Instruments` ordinary
shareholders, who acquired their Control Instruments ordinary
shares before 1 October 2001, may adopt (in certain circumstances)
the market value of the Control Instruments ordinary shares at 1
October 2001 as the base cost for CGT purposes ("valuation date
value"). The valuation date value contemplated in terms of this
paragraph is the price published by the Commissioner for Inland
Revenue in the Government Gazette, being R0.54 in respect of each
Control Instruments ordinary share. The base cost of Control
Instruments ordinary shares acquired on or after 1 October 2001 is
the expenditure actually incurred in respect of, or directly
related to, the cost of acquisition or disposal of such Control
Instruments ordinary shares allowable in terms of paragraph 20 of
the Eighth Schedule to the Act.
7.3 A Control Instruments ordinary shareholder must determine the portion of
the cost, as contemplated in paragraph 7.2 above, attributable to the
TeliMatrix shares as follows:
A x (B/(B + C)), where:
A = total cost/valuation date value (as per paragraph 7.2 above);
B = the "market value" of all TeliMatrix shares received in respect of
that Control Instruments ordinary share in terms of the unbundling; and
C = the "market value" of Control Instruments ordinary shares, in
respect of which the TeliMatrix shares in "B" were received.
(Such "market values" must be determined as at the close of business the
day after the unbundling. Control Instruments shares closed at R1.45 and
TeliMatrix shares closed at R1.80 on Tuesday, 13 November 2007.)
As two TeliMatrix shares were received for each Control Instruments
ordinary share held, the abovementioned ratio (i.e. B/(B + C)) will be
as follows:
B = 2 shares x R1.80; and
C = R1.45
R3.60 / (R3.60 + R1.45)
= 3.60 / 5.05
= 71.29%
7.4 Such apportioned cost or valuation date value, as the case may be, as
contemplated in paragraph 7.3, must be treated by that Control
Instruments` ordinary shareholder as:
* an amount to be taken into account by that shareholder in respect of
those TeliMatrix shares for the purposes of section 11(a), section
22(1), or section 22(2) of the Act, where such shareholder held the
Control Instruments ordinary shares as trading stock; or
* expenditure actually incurred by that shareholder in respect of those
TeliMatrix shares for the purposes of paragraph 20 of the Eighth
Schedule to the Act or as the valuation date value adopted by that
shareholder, where such shareholder held the Control Instruments
ordinary shares as capital assets.
7.5 A Control Instruments ordinary shareholder must determine the portion of
the cost or valuation date value, as the case may be, as contemplated in
paragraph 7.2, attributable to the Control Instruments ordinary shares
by reducing that cost or valuation date value, as the case may be, by
the amount attributable to the TeliMatrix shares determined in terms of
paragraph 7.3.
The portion of the cost or valuation date value, as the case may be,
attributable to the Control Instruments ordinary shares is 28.71%.
Depending on whether the shareholder realises a historical gain or loss
with the disposal of the TeliMatrix shares or Control Instruments
ordinary shares, if held as capital assets, the shareholder can normally
choose any of the following three methods to determine the base cost of
the particular shares:
* The market value as on 01 October 2001;
* Twenty per cent of proceeds; and
* The time apportionment method.
Consequently it is relevant that the cost and valuation date value (if
applicable), as contemplated in paragraph 7.2, be attributed in terms of
paragraphs 7.3 and 7.5 as the facts on the future date of disposal will
dictate which (i.e. the cost of valuation date value) will provide the
most beneficial result.
7.6 A Control Instruments ordinary shareholder`s shares, in respect of which
the TeliMatrix shares were received, and the TeliMatrix shares acquired
in terms of the unbundling must be deemed to be the same shares in
respect of the date of acquisition of such Control Instruments ordinary
shares and the date of incurring of any expenditure in respect of such
Control Instruments ordinary shares. This is of particular importance
when calculating the shares` base cost using the time apportioned
method.
7.7 Where a Control Instruments ordinary shareholder, who holds Control
Instruments ordinary shares as a result of the exercise by that
shareholder of a right contemplated in section 8A of the Act, receives
TeliMatrix shares in terms of the unbundling, a portion of any gain made
by that shareholder in the exercise of that right to acquire those
Control Instruments ordinary shares, not previously included in the
shareholder`s income, must be included in the income of that
shareholder. The portion of the gain should be included in the income in
the year of assessment during which that shareholder becomes entitled to
dispose of such TeliMatrix shares acquired, which portion shall be
calculated as follows:
A x (B/(B + C)), where:
A = the gain previously made in exercising the right to acquire the
said Control Instruments ordinary shares and not previously included in
the shareholder`s income;
B = the "market value" of all TeliMatrix - shares received in respect
of that Control Instruments ordinary share in terms of the unbundling;
and
C = the "market value" of Control Instruments ordinary shares in
respect of which the TeliMatrix shares in "B" were received.
(Such "market values" shall be determined as at the close of business
the day after the unbundling. Control Instruments shares closed at R1.45
and TeliMatrix shares closed at R1.80 on Tuesday, 13 November 2007.)
As indicated above the ratio (i.e. B/(B + C)) should be 3.60 / 5.05,
which equals 71.29%.
7.8 In the year of assessment during which a shareholder, as contemplated in
paragraph 7.7, becomes entitled to dispose of the Control Instruments
ordinary shares, the portion of any such gain to be included in the
income of that shareholder shall be calculated by reducing such gain by
the amount which has been determined or is to be determined in respect
of the TeliMatrix shares in terms of paragraph 7.7.
7.9 The unbundling will be exempt from the payment of stamp duty or
uncertificated securities tax on the registration of the transfer of
those TeliMatrix shares into the names of the Control Instruments
ordinary shareholders in terms of paragraph (x)(v) of the exemptions
from Stamp Duty under paragraph 3 of Item 15 of Schedule 1 to the Stamp
Duty Act No 77 of 1968 and from uncertificated securities tax in terms
of section 6(1)(b)(ix)(ee) of the Uncertificated Securities Tax Act No
31 of 1998 on the change of beneficial ownership of the TeliMatrix
shares in favour of the Control Instruments ordinary shareholders.
Cape Town
16 November 2007
Sponsor
Investec Bank Limited
Transactional sponsor
PricewaterhouseCoopers Corporate Finance (Pty) Limited
Tax Advisor
Jan S De Villiers Tax Services (Pty) Limited
Date: 16/11/2007 12:40:32 Produced by the JSE SENS Department.
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