The Income Tax Deductibility of Expenditure Incurred by Stockbrokers in Earning Exempt Incidental Dividends

Mpho Dibate Christian Lefakane, Riaan Wessels () and Siphamandla Makhaya ()
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Mpho Dibate Christian Lefakane: University of Johannesburg
Riaan Wessels: University of Johannesburg
Siphamandla Makhaya: University of Johannesburg

A chapter in Impacting Society Positively Through Technology in Accounting and Business Processes, 2025, pp 423-438 from Springer

Abstract: Abstract Stockbrokers acquire shares as trading stock rather than as capital assets. They can usually claim a deduction for the cost of buying shares under section11(a) of the Income Tax Act No. 58 of 1962 (hereafter ‘the Act’). Where stockbrokers receive incidental dividends while the shares held as trading stock are unsold, section 23(f) of the Act will result in a portion of the expenditure being non-deductible. This study uses a doctrinal research method to evaluate if disallowing stockbroking expenditure under section 23(f) of the Act is justified when stockbroking businesses are primarily engaged in purchasing and selling shares for profit. The study also examines how expenses incurred by stockbrokers in India, which held shares as trading stock, were treated and whether principles from Indian tax court rulings could be adopted in South Africa. It was found that the disallowance of stockbroking expenditure under section 23(f) may not be appropriate given South African stockbrokers’ business strategy. Additionally, Indian courts have allowed the full deduction of stockbroking expenses for shares held as trading stock, despite receiving dividends on unsold shares. Subsequently, suggestions were proposed for South African legislation, drawing from the practices observed in India.

Keywords: Stockbrokers; Dividends; Expenditure; Section 23(f); South Africa; India (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/978-3-031-84885-8_23

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