There is a perception that if shares (or even property) are held for five years or more, the proceeds on sale will automatically be treated as capital, and therefore, non-taxable when they are sold.
Unfortunately, this perception may not be correct. Subject to a specific exception, where you hold shares as trading stock, or where there is a profit-making intention on sale of the shares, the proceeds will be treated as revenue in nature, and therefore taxable, regardless of the length of time they have been held.
Clearly, however, holding shares for a long period will help to support your contention to the South African Revenue Services (SARS) that such shares have been held as investments (not trading stock). However, SARS will look at the circumstances and decide whether it is prepared to accept your contention.
But there is another option, which probably explains where the five year misconception arose. In terms of the income tax legislation, the first time you dispose or disposed of a listed share after 14 March 1990 (yes,1990, that is not a typo), you may make an election under section 9B (you have probably seen the question on your tax return which asks: "Have you made an election under section 9B?"
Making the election means that if you hold listed shares for more than five years, regardless of whether they are held as trading stock or not, they will be treated as investments for tax purposes and the proceeds will not be taxable. Equally so, if you make a loss on the sale, it will not be deductible.
If you have made the election, and have disposed of listed shares, which you have held for less then five years, you will not automatically be taxed on the proceeds. In this situation, you will need to demonstrate that the proceeds are either capital or revenue in nature, based on your intention and the surrounding circumstances, as you would have had to, had you not made the election.
But you must have made the election on the date that you dispose of the first listed share after 14 March 1990. If you have disposed of listed shares since 1990 and have not made the election, you may not now do so.
The question may arise in your mind: How can I now make use of the section 9B election, even though I have disposed of listed shares since 1990 and have not made the election?
The election is available for each taxpayer. So if you form a private company or a close corporation (CC) you could lend funds to the company or CC to enable it to buy shares (possibly your entire portfolio, but beware the tax consequences of disposing your portfolio you may need advice).
The company or CC may then make the section 9B election in the first year that it sells a listed share. Once it has made the election, any listed shares disposed of, after they have been held for at least five years, will be shielded from income tax.
Dividends received by the company or CC may then be declared to you, and because they are offset by dividends received there will not be any secondary tax on companies (STC).
Beware, though, that any dividends declared, which are not shielded by dividends received for example, because the reserves arose through disposals of shares may be subject to STC. Obviously, in order to make use of section 9B, you need to know your objectives in relation to the shares and understand all the consequences of dealing with your portfolio through a company or CC.