What is a financial instrument according to SARS?

A financial instrument is a contract that represents money or something of value. For one party, it’s an asset (something valuable), and for the other party, it’s a liability (something owed) or equity (ownership).

According to SARS, a financial instrument is defined to include:

“a share, a member’s interest in a company, a debenture, a unit in a unit trust
scheme, a participatory interest in a portfolio of collective investments scheme, a
hybrid equity instrument, a loan, an option, a financial arrangement, or any other
instrument that is similar in nature”

Basically, anything you can invest in or use to borrow or lend money. It’s a “broad”
term used in tax law to cover many types of financial products.

In simpler terms, this includes:
-Shares in companies (like owning part of a business)
-Bonds or debentures listed on the JSE market (loans you give to a company or
government, and they pay you back with interest)
-Loans (including inter-company loans)
-Derivatives such as options and futures (agreements to buy or sell things later at a
set price)
-Hybrid instruments (investments that are a mix of shares and loans)
-Unit trusts or collective investments (pooling your money with others to invest
together)
-Interest-bearing arrangements
-Crypto assets could also fall under this umbrella when they function as investments
or financing mechanisms, although SARS treats them under specific crypto-related
guidelines as well.
-Any similar investment or financing contracts
This definition is intentionally broad so that SARS can apply tax laws to a wide
variety of financial arrangements.

Example 1: Buying Shares

You (or your financial advisor) buy shares in a company like Woolworths on the JSE
(stock exchange). That’s a financial instrument because it’s an investment — you
own a piece of the company. If you sell those shares later and make a profit, SARS
wants to know because you might need to pay tax on that gain.

Example 2: Giving a Loan to a Friend's Business

You lend R50,000 to your friend’s small business and agree they’ll pay you back with
interest in a year. That loan is also a financial instrument. SARS sees this as an
investment, and you may need to pay tax on the interest on this loan.

Example 3: Unit Trust Investment

You invest in a unit trust through your bank or financial advisor. Your money gets
combined with other investors and put into things like shares and bonds. That unit
trust is a financial instrument, and any money you make from it (like growth or
payouts) will be taxed.

Example 4: Buying Bitcoin

Even cryptocurrencies like Bitcoin can count as financial instruments if you're using
them as an investment. So, if you buy Bitcoin and later sell it for a profit, SARS
considers that a capital gain — and you will owe tax.