This chapter deals with disposals of shares. Due to the derivative nature of shares, the tax on corporate income when derived can be duplicated when gains on the disposal of shares are taxed (economic double taxation). The stripping effect of dividends can remove the duplication. These themes inform various options for the taxation of share gains. A major issue here is how taxation of gains on the disposal of shares relates to the taxation of dividends (Chapter 2). There may be similar treatment, but this is not always possible depending on the type of dividend relief adopted. Other methods of integration are possible. Share disposals may cause a change of ownership of a corporation with consequences at the corporate level, particularly on a corporation’s tax attributes such as losses. Many countries restrict the use of corporate carry forward losses on a change of ownership. Defining a sufficient change highlights the artificiality of corporations. Other tax attributes are considered, including the tax value of assets, unrealised losses and the carry forward of credits. The chapter concludes with a comparison of the tax consequences on the sale of a corporate business either directly or indirectly through the sale of shares.

This chapter considers the change of an existing share interest in some form. There is a realisation event, either by issuing, transferring or terminating share interests. The change can be by substitution, such as on the exercise of options or convertible notes. It might be by way of splitting and here the focus is on the tax treatment of bonus shares or stock distributions. It can also be by way of consolidation. All of these corporate reconstructions raise the issue of whether the investor’s interest in the corporation has changed sufficiently to justify the imposition of tax consequences. Similar issues arise where more than one corporation is involved in the change. So, in a corporate merger, a shareholder in the target may exchange their shares in return for shares in the bidder. Consideration is given to mergers by fusion and mergers by share exchange. Such mergers raise change of ownership issues (Chapter 5) similar to those raised in the context of a cash takeover. Demergers involve the splitting of a business or subsidiary from the holding corporation, and this can result in the investor holding two sets of shares post demerger. Issues raised are similar to for bonus shares.