A casual investor who buys and sells shares on the share market is generally of the view that the only tax they will have to pay is on dividends as they did not acquire shares with the purpose to resell. The investor may purchase shares in order to enjoy the income from them, albeit in the expectation that at some future time they will be sold at a profit if and when an opportune occasion presents itself. They are of the view that they should not be taxed on any gains made on shares traded. Investment companies regularly buy and sell shares with the intention of generating dividend income and preserving the capital of the company. They will claim that the dominant purpose of acquiring the shares was to generate dividend income and buying and selling of shares was the mechanism of achieving that purpose.

The realisation or switching of investments by banks and insurance companies are normally regarded as acts done in carrying on the banking or insurance business and any profits arising therefrom will be treated as income. However there are exceptions to this theory.

It is difficult to conceive of any case where shares are purchased, in which the purchaser does not have at least some intention of disposing of them if their value appreciates to the point where their sale appears to be financially desirable. The heart of the inquiry is whether or not the taxpayer has acquired the shares for the purposes of disposal. This paper will endeavour to highlight the difficulties faced by individuals and corporate entities in what the writer believes is a “murky” area when establishing whether gains made on share realisations are taxable. The Courts have emphasised that no general tests can be laid down. In the writer’s view, the legislation is vague and it is difficult to ascertain where one stands in terms of the law, which makes it difficult to apply in practice.