1
CHAPTER 54
DIVIDENDS TAX
Table of Contents
1.INTRODUCTION .............................................................................................................................. 2
2. CONNECTED PERSON DEFINITION .................................................................................................. 2
3.BASIC APPLICATION OF DIVIDENDS TAX .......................................................................................... 4
4. WHO PAYS DIVIDENDS TAX............................................................................................................ 5
5. WHEN IS DIVIDENDS TAX PAYABLE ................................................................................................ 8
6.DIVIDENDS IN SPECIE...................................................................................................................... 8
7.DEEMED DIVIDENDS TAX ON CERTAIN LOANS ............................................................................... 13
8. EXEMPTIONS FROM DIVIDENDS TAX ............................................................................................ 16
8.1 DIVIDENDS OTHER THAN DIVIDENDS IN SPECIE....................................................................... 17
8.2 EXEMPTION FROM AND REDUCTION OF TAX IN RESPECT OF DIVIDENDS IN SPECIE .................. 18
9. STC CREDITS ................................................................................................................................ 20
10 REFUNDS SECTION 64L AND SECTION 64M .................................................................................. 22
11. REBATES ON FOREIGN DIVIDENDS SECTION 64N ......................................................................... 24
12.MISCELLANEOUS CONSIDERATIONS SECTION 64K ....................................................................... 24
1
DIVIDENDS TAX
STEVEN LEVER © FOR USE BY FLB STUDENTS ONLY
UPDATED 05/2012
2
1.INTRODUCTION
This chapter will discuss the topic of dividends tax.
This chapter discusses the following:
 An understanding of the term connected person
 A basic application of dividends tax
 An explanation of which dividends from which companies will attract dividends tax.
 On what date is dividends tax payable
 Treatment of dividends in specie
 Can loans to shareholders/persons connected to shareholders be deemed to be dividends for
the purposes of dividends tax.
 Exemptions from dividend tax
 The use of STC credits in dividends tax calculations
 Refunds of dividends tax
 Foreign rebates on dividends tax
 Miscellaneous provisions
By the end of the chapter, you should be able to apply dividends tax rules to general situations and
calculate the amount of dividends tax to be paid.
2. CONNECTED PERSON DEFINITION
For purposes of understanding the application of dividends tax, it is necessary to understand the term
“connected person”. In many instances, amounts distributed to a shareholder or a connected person to
a shareholder will be treated as subject to dividends tax.
Connected persons means:
FOR A NATURAL PERSON



Any relative related to the third degree of consanguinity.
o Examples include
 A person is related to their child (1st degree), their grandchild (2nd degree), their
great grandchild (3rd degree)
 A person is related to their parent (1st degree), their grandparent (2nd degree),
their great grandparent (3rd degree)
 A person is related to their parent (1st degree), their brother (2nd degree), their
brother’s child (3rd degree)
Any trust where the natural person or a relative to the third degree of consanguinity are
beneficiaries of the trust
o Examples include
 A trust where your grandfather is a beneficiary
 A trust where your brother’s daughter is a beneficiary
 A trust where your child is a beneficiary
Any partnership where a natural person is a partner, the natural person will treat any of his/her
partners and any connected person to his/her partners as connected persons
2
DIVIDENDS TAX
STEVEN LEVER © FOR USE BY FLB STUDENTS ONLY
UPDATED 05/2012
3
o


Examples include
 Your partner in a partnership
 Your partner’s wife
 Your partner’s child
 Your partner’s grandchild
Any company where a natural person or/and a connected person to him/herself owns at least
20% of either the share in profits or voting rights of the company
o Examples include
 A person owns 20% of a company
 A person owns 15% of a company and his brother owns 8% of the company,
both the person and his brother will be connected persons
 A person owns 5% of a company and another company in which he owns 30%
owns 16% of the company.
Any close corporation of whom the natural person or a connected person relative or connected
person trust is a member of.
Note that a person cannot be a connected person to a collective investment scheme, such as a property
unit trust or an equity unit trust
FOR A TRUST

Any person who is a beneficiary of the trust or any person who is a connected person to the
beneficiary
FOR A PARTNERSHIP

Any partner or connected person to the partner
FOR A COMPANY



Natural persons who individually, or with a connected person to them own at least 20% of the
profits of the company or 20% of the voting rights of the company
Another company within a group of companies – a company where a shareholder/group of
connected person shareholders owns more than 50% of the equity profit or 50% of the voting
rights.
o Examples include
 Mr A owns 100% of company A and 80% of company B. Company A is a
connected person to company B.
 Mr A owns 60% of company A and 20% of company B. Company B owns 25% of
company A. Company A and company B are connected persons.
Another company if at least 20% is held by that company and no other person controls the
company
o Examples include
 30% held in company A where no other shareholder controls the company.
 16% which is held in company A and a shareholder in your company owns 4% of
the shares.
o Examples do not include
 49% held in a company where someone else owns 51%.
 15% held in a company where no other connected person to the company owns
shares.
3
DIVIDENDS TAX
STEVEN LEVER © FOR USE BY FLB STUDENTS ONLY
UPDATED 05/2012
4
FOR A CC

Any member or connected person to the member of the close corporation.
3.BASIC APPLICATION OF DIVIDENDS TAX
Dividends tax was introduced from 1 April 2012.
Dividends tax is levied at a rate of 15%.
Dividends tax is not a tax levied on companies, but rather a tax levied on shareholders other than
companies.
The company declaring the dividend is required to withhold tax on dividends paid, and pay such
withholding tax across to SARS. (For a discussion on what constitutes a dividend, the chapter on SA local
dividends should be understood)
The shareholder receives the net dividend after withholding tax has been taken off.
Companies registered in South Africa do not pay dividends tax. All other taxpayers are required to pay
dividends tax.
The company paying the dividend determines whether a shareholder is a SA company or not by getting
shareholders to fill out forms. All shareholders make declarations to the company that pays the
dividend. The 15% is withheld from those taxpayers that are not SA companies.
ILLUSTRATION 3A
Mr A and B (Pty)Ltd are the only two shareholders of C (Pty) Ltd, a company registered and controlled in
South Africa.
C (Pty) Ltd sent out forms to these 2 shareholders. Mr A declared that he was an individual, and B (Pty)
Ltd declared that they were a SA company, exempt from the payment of dividends tax.
In addition, B (Pty) Ltd also sent out forms to Mr A. Mr A declared that he was an individual, liable to
pay dividends tax.
During the current year, C (Pty) Ltd made R3,000,000 taxable income, and decided to pay R1,000,000 as
a dividend to shareholders.
Mr A owns 80% of C(Pty) Ltd and 100% of B (Pty) Ltd.
B Pty(Ltd) only owns 20% of C (Pty) Ltd, and has no other interests, income or expenses. B (Pty) Ltd
decides to declare a dividend of R200,000.
Calculate the tax payable in respect of the above.
4
DIVIDENDS TAX
STEVEN LEVER © FOR USE BY FLB STUDENTS ONLY
UPDATED 05/2012
5
SUGGESTED SOLUTION TO ILLUSTRATION 3A
C (Pty) Ltd pay income tax of R3,000,000 X 28% = R840,000 income tax.
C (Pty) Ltd declared a dividend of R1,000,000. There is no tax payable by C (Pty) Ltd in this regard.
Mr A receives a dividend of 80% X R1,000,000 = R800,000. Dividends tax of 15% X R800,000 = R120,000
will be withheld by C (Pty) Ltd and paid across to SARS.
Mr A will receive a net dividend of R800,000 – R120,000 = R680,000. As dividends tax has been paid on
this local dividend:
 Mr A will include R800,000 into his taxable income in his tax return
 All R800,000 will be exempt as local dividends are exempt.
As regards B (Pty) Ltd,
 A dividend of R1,000,000 X 20% is declared to the company.
 The company will receive all R200,000. No dividends tax is withheld when paying such amount to a
South African company.
 The company will pay no tax on the R200,000 dividend declared.
As regards Mr A:
 Mr A will receive a dividend of R200,000 from B (Pty) Ltd
 As Mr A is not a South African company, withholding tax of 15% will be withheld on the dividend of
R200,000 and R30,000 will be paid to SARS.
 Mr A will receive R170,000 in cash.
 Mr A will include R200,000 into his taxable income in his tax return
 All R200,000 will be exempt as local dividends are exempt.
4. WHO PAYS DIVIDENDS TAX
Dividends tax is paid on distributions by any:
 company that is registered and controlled in South Africa
 company that is registered in South Africa, but controlled outside of South Africa
 company that is registered in another country, but is managed and controlled in South Africa
 company that is registered in another country, but is listed on the Johannesburg Stock
Exchange.
For cash distributions, the person liable for the tax is the recipient of the dividend. However the
company paying the dividend withholds the tax and pays it on behalf of the recipient.
For dividends in specie (asset declared as a dividend), the company paying the dividend is liable for
dividends tax that needs to be paid on the dividend.
5
DIVIDENDS TAX
STEVEN LEVER © FOR USE BY FLB STUDENTS ONLY
UPDATED 05/2012
6
ILLUSTRATION 4A
Dividends are declared by the following companies. For each of the companies, state whether dividends
tax needs to be withheld by the companies, should dividends tax be payable by shareholders of the
company.
1. A Ltd is a company that is registered in SA. It is run through a branch network of 59 branches, 10 of
which are in foreign countries. Currently 80% of its income comes from South African operations.
Management run the company from its head office in Durban.
2. B Ltd is a company that is registered in SA. It is run through a branch network of 59 branches, 52 of
which are in foreign countries. Currently 30% of its income comes from South African operations.
Management run the company from its head office in Durban.
3. C Ltd is a company that is registered in SA. It is run through a branch network of 59 branches, 10 of
which are in foreign countries. Currently 13% of its income comes from South African operations.
Management run the company from its head office in London.
4. D Ltd is a company that is registered in the UK. It is run through a branch network of 59 branches,
40 of which are outside SA. Currently 13% of its income comes from South African operations.
Management run the company from its head office in Johannesburg.
5. E Ltd is a company that is registered in SA. It is run through a branch network of 59 branches, 10 of
which are in foreign countries. Currently 13% of its income comes from South African operations.
Management run the company from its head office in London. The company has a dual listing on
the London Stock Exchange and the Johannesburg Stock Exchange
SUGGESTED SOLUTION TO ILLUSTRATION 4A
1.
2.
3.
4.
5.
Dividend tax payable
Dividend tax payable
Dividend tax payable
Dividend tax payable
Dividend tax payable
Tax is withheld and paid across to SARS by
 the company paying the dividend or
 regulated intermediaries.
The definition of regulated intermediary is contained in section 64D. Regulated intermediaries are
various organisations that receive dividends on behalf of others. The dividend paid to the intermediary
is the full dividend, without any withholding tax having been withheld. The regulated intermediary will
then determine whether dividends tax needs to be withheld and paid across to SARS on behalf of the
taxpayer. An example of a regulated intermediary will be a unit trust.
6
DIVIDENDS TAX
STEVEN LEVER © FOR USE BY FLB STUDENTS ONLY
UPDATED 05/2012
7
ILLUSTRATION 4B
A (Pty) Ltd has 3 shareholders.
 30% owned by Mr B
 25% owned by C Ltd, a South African company
 45% owned by D Equity Unit Trust, a regulated intermediary. D Equity unit trust is owned 90% by
natural persons and 10% by SA companies
A (Pty) Ltd pays a dividend of R1,000,000 to shareholders.
Determine the amount of dividends tax to be paid across to SARS by the company or regulated
intermediaries.
SUGGESTED SOLUTION TO ILLUSTRATION 4B
R300,000 dividend is payable to Mr B. The company, A (Pty) Ltd will pay across 300,000 X 15% = R45,000
to SARS on behalf of Mr B.
The R250,000 paid to C Ltd does not attract dividends tax as it is paid to a company registered and
controlled in SA.
R450,000 is paid to the unit trust. As the unit trust is a regulated intermediary, no dividends tax is
withheld.
However the unit trust will have to withhold 90% X R450,000 X 15% = R60,750 before paying out
amounts to individuals and pay this amount across to SARS on behalf of its unit holders that are not
companies. Nothing will be withheld by the unit trust for unit holders that are SA companies.
The company and the regulated intermediary send out a form to all shareholders asking for
 the status of the shareholder (are you a company registered in SA, an individual, a trust, a
regulated intermediary, etc.)
 an undertaking from the shareholder that should their status change (such as when they are no
longer the beneficial owner), that the shareholder will notify them of any changes
The company declaring the dividend or the regulated intermediary will withhold or not withhold tax
based on the reply obtained.
If the shareholder does not reply, dividends tax is withheld irrespective of whether the shareholder is a
SA company or not.
In certain circumstances, dividends tax is not withheld at the standard rate (currently 15%) if the
shareholder resides in a country where there is a double tax agreement that reduces the rate of
dividends tax. (Example of this is Mauritius where 5% dividends tax will be withheld)
7
DIVIDENDS TAX
STEVEN LEVER © FOR USE BY FLB STUDENTS ONLY
UPDATED 05/2012
8
5. WHEN IS DIVIDENDS TAX PAYABLE
Dividends tax is only payable on the earlier of
 the date the dividend has been paid by the company that declares the dividend, or
 the date the dividend becomes payable by the company that declared the dividend
The declaration date and the last date to register are irrelevant.
The amount of dividends tax must be paid to SARS by the last day of the month following the month the
dividend was paid.
Thus if a dividend was paid on 5 March, the dividends tax needs to be paid by the last day of April.
Similarly if a dividend is paid on 29 September, dividends tax must be paid to SARS by the last day of
October.
ILLUSTRATION 5A
Naspers, a company listed on the JSE:
 declares a dividend of 120 cents a share on 12 April
 to shareholders registered at the share registrars on 21 April,
 payable on 29 April.
Due to a problem with the share registers, shareholders were only paid on 5 May.
What are the taxation implications?
SUGGESTED SOLUTION TO ILLUSTRATION 5A
The dividends tax is payable on the earlier of
 29 April (date the dividend becomes payable by the company) or
 5 May (date the dividend was actually paid.)
29 April is used and the dividends tax must be payable by the end of the following month. Thus
dividends tax must be paid across to SARS by 31 May.
6.DIVIDENDS IN SPECIE
A dividend in specie is when a company distributes an asset to a shareholder and not cash. Where a
company declares a dividend in specie:
 The dividends tax is based on the market value of the asset so distributed as a dividend in specie
 The date that the company uses as payment date will be the earlier of
o the date the asset is given to the shareholder, or
o the date the asset should be given to the shareholder
8
DIVIDENDS TAX
STEVEN LEVER © FOR USE BY FLB STUDENTS ONLY
UPDATED 05/2012
9
For a discussion on the vat treatment for dividends in specie, refer to the chapter on local SA dividends.
The illustration below deals with the vat treatment.
The company that is paying the dividend in specie is liable for the payment of dividends tax in respect of
the dividend in specie. (Section 64EA of the Act)
For cash distributions, the person liable for the tax is the recipient of the dividend. However the
company paying the dividend withholds the tax and pays it on behalf of the recipient.
ILLUSTRATION 6A
B (Pty) Ltd, a company that retails furniture, is owned 100% by Mr A. On 15 March, Mr A is declared a
dividend of a motor car with a cost of R500,000, a tax value of R350,000 and a market value of
R300,000, plus R400,000 in cash. The dividend is payable on 7 April. However the company gives the
cash and the motor car to Mr A on 29 March.
This is the only transaction during the current tax year between the parties. B (Pty) Ltd is a vat vendor.
Mr A will use the asset for private purposes.
You are required to discuss:
a) What are the taxation implications?
b) How would the tax implications change if the market value of the motor car was R380,000.
c) How would the tax implications change if the market value of the car was R540,000
d) How would the tax implications change if the asset was furniture worth R540,000 and not a car.
e) How would the tax implications for part d change if the recipient was Mr A, registered for vat, and
the furniture has been used for 21 months before. Mr A will use the furniture in his accounting
practice. Furniture is written off over 6 years for tax purposes. The furniture is used for business
purposes. All amounts include vat unless otherwise stated.
SUGGESTED SOLUTION TO ILLUSTRATION 6A
Note that for this transaction, there are no vat implications. As an input vat claim is denied on the
acquisition of motor car, there will thus be no output vat on disposal of the motor car by the company.
Part a
The dividends tax is payable on the earlier of
 7 April (date the dividend becomes payable by the company) or
 29 March (date the dividend was actually paid.)
29 March is used and the dividends tax must be payable by the end of the following month. Thus
dividends tax must be paid across to SARS by 30 April.
The amount of the dividends tax to be withheld by the company is R400,000 cash plus R300,000 (use
market value for a dividend in specie) X the rate of dividends tax.
Withholding tax of R700,000 X 15% = R105,000 will be withheld and paid to SARS by the company by 30
April.
9
DIVIDENDS TAX
STEVEN LEVER © FOR USE BY FLB STUDENTS ONLY
UPDATED 05/2012
10
However the shareholder is liable for 400,000 X 15% = R60,000 dividend tax as this is the cash
distribution.
The company is liable for the remainder of the R45,000.
R340,000 (R400,000 – R60,000 tax) plus the motor car will be received by Mr A.
The company will be deemed to have disposed of the motor car and will make a loss of R50,000
(R350,000 – R300,000) on the disposal of the car being the amount that the market value is below tax
value.
B (Pty) Ltd and Mr A are connected person in terms of the Act. (Mr A owns 100% of the company)
A scrapping allowance cannot be claimed on transactions between connected persons in terms of the
Act. Thus the R50,000 loss is not claimable in the tax return.
As no scrapping allowance can be claimed, a capital loss of R50,000 results, which is clogged. The
amount of R50,000 will not be used in the current year’s tax calculation and carried forward to a later
year of assessment.
Note
 Capital losses on transactions between connected persons may only be set off against transactions
between the same 2 parties. If not used in the current year, the amount is carried forward to the
next year.
 As the asset is used for private purposes, no capital allowances will be claimable by Mr A on the
motor car received.
Part b
The amount of the dividends tax to be withheld is R400,000 cash plus R380,000 (use market value for a
dividend in specie).
Withholding tax of R780,000 X 15% = R117,000 will be withheld and paid to SARS by the company by 30
April. R283,000 (R400,000 – R117,000 tax) plus the motor car will be received by Mr A.
However the shareholder is liable for 400,000 X 15% = R60,000 dividend tax as this is the cash
distribution.
The company is liable for the remainder of the R57,000.
R340,000 (R400,000 – R60,000 tax) plus the motor car will be received by Mr A.
The company will be deemed to have disposed of the motor car and will make a recoupment (profit) of
R30,000 (R380,000 – R350,000) on the disposal of the car being the amount that the market value is
above tax value. There is no capital gains as the asset was sold below original cost.
10
DIVIDENDS TAX
STEVEN LEVER © FOR USE BY FLB STUDENTS ONLY
UPDATED 05/2012
11
Part c
The amount of the dividends tax to be withheld is R400,000 cash plus R540,000 (use market value for a
dividend in specie).
Withholding tax of R940,000 X 15% = R141,000 will be withheld and paid to SARS by the company by 30
April. R259,000 (R400,000 – R117,000 tax) plus the motor car will be received by Mr A.
However the shareholder is liable for 400,000 X 15% = R60,000 dividend tax as this is the cash
distribution.
The company is liable for the remainder of the R91,000.
R340,000 (R400,000 – R60,000 tax) plus the motor car will be received by Mr A.
The company will be deemed to have disposed of the motor car and will make a recoupment (profit) of
R150,000 (R500,000 original cost – R350,000 tax value) on the disposal of the car being the amount of
tax deductions claimed back on disposal.
As the asset has a market value in excess of original cost, a capital gain of R40,000 is also recorded.
(Refer to the chapter on capital gains for the calculation)
Part d
Dividends tax would not change if there is furniture and not a motor car as the values between the two
examples remain unchanged. Withholding tax of R141,000 will still be withheld and paid to SARS.
However the shareholder is liable for 400,000 X 15% = R60,000 dividend tax as this is the cash
distribution.
The company is liable for the remainder of the R91,000.
R340,000 (R400,000 – R60,000 tax) plus the furniture will be received by Mr A.
The company distributing the asset will have to consider the vat implications. As the transaction is from
a vendor to a non-vendor, vat must be accounted for on the transaction. The amount of output VAT is
R66,316 (540,000 X 14/114), which must be accounted for on the change of use. The furniture was
acquired as a business asset, and is now not being used for business use (used as a dividend.)
The net proceeds after Vat of R473,684 (R540,000 market value less vat of R66,316) will lead to a
recoupment of R123,684 (R473,684 – R350,000)
There is no capital gain as the disposal amount (after vat) is below original cost.
11
DIVIDENDS TAX
STEVEN LEVER © FOR USE BY FLB STUDENTS ONLY
UPDATED 05/2012
12
Part e
What is different about this example is that Mr A is going to use the furniture in his business, which is
registered for VAT.
Vat ruling 329 states that VAT is ignored when an asset is distributed as a dividend in specie between 2
vat vendors, which is the case here.
The amount of the dividends tax to be withheld is R400,000 cash plus R540,000 (use market value for a
dividend in specie including vat for a dividend in specie between 2 vendors).
Withholding tax of R940,000 X 15% = R141,000 will be withheld .
However the shareholder is liable for 400,000 X 15% = R60,000 dividend tax as this is the cash
distribution.
The company is liable for the remainder of the R91,000.
R340,000 (R400,000 – R60,000 tax) plus the furniture will be received by Mr A.
The company will be deemed to have disposed of the furniture and will make a recoupment (profit) of
R150,000 (R500,000 original cost – R350,000 tax value) on the disposal of the furniture being the
amount of tax deductions claimed back on disposal.
As the asset has a market value in excess of original cost, a capital gain of R40,000 is also recorded.
(Refer to the chapter on capital gains for the calculation)
As relates to Mr A, as the furniture is received from a connected person, in terms of section 23I of the
Act, cost will be lesser of market value (R540,000) or
original cost
500,000
-Tax allowances
-150,000
+recoupment
+150,000
+taxable capital gain (40,000 X 2/3)
+ 26,667
526,667
Wear and tear will be claimed over 6 years based on a deemed cost of R526,667.
12
DIVIDENDS TAX
STEVEN LEVER © FOR USE BY FLB STUDENTS ONLY
UPDATED 05/2012
13
7.DEEMED DIVIDENDS TAX ON CERTAIN LOANS
Loans may be given to shareholders or connected person to the shareholder for a number of reason.
Examples of this are:
 A commercial loan given by the lender to generate interest income.
 A low or no interest loan to an employee of a company because of the person’s employment at
the company (Note that a director may get a loan in his/her capacity as a director. As the person
is a director, this may be treated as a fringe benefit.)
 A low or no interest loan granted to a person because of the status of that person as a
shareholder.
Section 64E seeks to collect dividends tax various low and interest free loans to persons because of
their capacity as shareholders. This will be discussed hereafter.
For the discussion below, assume the following facts:
 The loan is given on 1 April of a year
 A loan of R400,000 at a rate of 2% is given to the daughter of Mr A, a 80% shareholder of the
company. The daughter is a resident of South Africa
 The company has a 30 June year end.
 The tax year is 365 days.
 The South African repurchase rate is 6%.
 No amounts are repaid as at year end, except for the monthly 2% interest payment.
13
DIVIDENDS TAX
STEVEN LEVER © FOR USE BY FLB STUDENTS ONLY
UPDATED 05/2012
14
EXAMPLE ABOVE
LOAN OF R400,000 GIVEN TOP THE
DAUGHTER OF MR A
START HERE
DETERMINING OF WHETHER A LOAN
WILL BE SUBJECT TO DIVIDENDS TAX
NO
STEP 1
IS THE LOAN GIVEN TO
A PERSON WHO IS NOT A COMPANY AND
THE PERSON RECEIVING THE LOAN IS A
RESIDENT OF SOUTH AFRICA AND
THE PERSON RECEIVING THE LOAN IS THE
SHAREHOLDER OF THE COMPANY OR A
CONNECTED PERSON TO THE
SHAREHOLDER,AND
THE SHAREHOLDER IS A CONNECTED
PERSON TO THE COMPANY
GIVEN IN THER CAPACITY AS A
SHAREHOLDER NOT IN ANOTHER CAPACITY
1.
2.
3.
4.
5.
1.
2.
3.
4.
YES
STEP 2
IF THIS IS THE CASE, THEN THERE WILL BE A
DIVIDEND THAT IS SUBJECT TO DIVIDENDS TAX.
DIVIDENDS TAX IS CALCULATED ON THE NET
INTEREST BETWEEN
 INTEREST THAT SHOULD BE CHARGED AT
THE OFFICIAL RATE (CURRENTLY
REPURCHASE RATE + 1%) AND
 ACTUAL INTEREST PAID



STEP 3
MULTIPLY THE ANSWER PER STEP 2 BY THE
RATE OF DIVIDENDS TAX (CURRENTLY 15%)
STEP 4
THE DIVIDEND IS DEEMED TO BE PAID ON THE
LAST DAY OF THE COMPANY’S YEAR OF
ASSESSMENT
APPLICATION OF STEP 1
THE LOAN GIVEN TO
A PERSON WHO IS NOT A
COMPANY (SHE IS NOT A
COMPANY) AND
THE PERSON RECEIVING THE
LOAN IS A RESIDENT OF SOUTH
AFRICA AND
THE PERSON RECEIVING THE
LOAN IS A CONNECTED PERSON
TO THE SHAREHOLDER,MR A AS
SHE IS HIS DAUGHTER AND
THE SHAREHOLDER, MR A IS A
CONNECTED PERSON TO THE
COMPANY
APPLICATION OF STEP 2
INTEREST THAT SHOULD BE
CHARGED AT THE OFFICIAL RATE
(CURRENTLY REPURCHASE RATE +
1%) IS 7% X R400,000 X 91/365
WHICH EQUALS R6,980
ACTUAL INTEREST PAID IS 2% X
R400,000 X 91/365 WHICH
EQUALS R1,995
DIFFERENCE IS R4,985
APPLICATION OF STEP 3
MULTIPLY THE ANSWER PER STEP 2
BY THE RATE OF DIVIDENDS TAX
R4,985 X 15% = R748
APPLICATION OF STEP 4
THE DIVIDEND IS DEEMED TO BE PAID
ON THE LAST DAY OF THE
COMPANY’S YEAR OF ASSESSMENT
WHICH IS 30 JUNE. DIVIDENDS TAX
PAYABLE TO SARS BY 31 JULY
NO DIVIDENDS TAX
14
DIVIDENDS TAX
STEVEN LEVER © FOR USE BY FLB STUDENTS ONLY
UPDATED 05/2012
15
ILLUSTRATION 7A
Looking (Pty) Ltd is a company managed and controlled in South Africa. It is an IT company set up by a
group of 7 friends after finishing high school in 2007. The company has a March year end.
All shareholders of Looking (Pty) Ltd are residents of South Africa, other than where otherwise stated.
Excerpts from the company’s share register indicate the following:
 22% shareholding owned by Segal (Pty) Ltd
 6% shareholding owned by John Segal, who owns 60% of Segal (Pty) Ltd.
 8% shareholding owned by Harry Liebesman
 20% shareholding owned by James Cameron
 22% owned by Melancholy PLC, a company registered in the United Kingdom
 11% owned by Natasha Krinsky, a resident of the United States.
 11% owned by the Krinsky trust, of which Natasha Krinsky is a beneficiary. The trust is managed and
controlled in South Africa.
The following loans are issued during the year
 Loan of R100,000 at a 1% interest rate issued to Jonathan Segal. This loan was given in his capacity
as managing director of the company, and the relevant fringe benefit has been included in his pay
slip.
 Loan of R200,000 at a 1% interest rate issued to Jonathan Segal. This loan was not given in his
capacity as managing director of the company, and the relevant fringe benefit has not been
included in his pay slip. This loan has been outstanding the whole year.
 Loan of R300,000 to Segal (Pty) Ltd at a rate of 4%.
 Interest free loan of R40,000 to Harry Liebesman. He is not employed by the company.
 Loan of R500,000 to James Cameron at an interest rate of 7%.
 Interest free loan of R600,000 to Melancholy PLC
 Loan of $70,000 at an interest rate of 5% to Natasha Krinsky. The average exchange rate was $1 =
R8.30 for the year. The spot rate at year end was $1 = R8. The loan was granted on 2 January.
 Loan of $80,000 at an interest rate of 5% to the Krinsky Family Trust. The average exchange rate
was $1 = R8.30 for the term of the loan. The spot rate at year end was $1 = R8. The loan was
granted on 2 January.
 Interest free loan of R90,000 issued to Greg Knight, a beneficiary of the Krinsky Trust. The loan was
issued on 1 November.
The current repurchase rate is 5,5%.
Calculate the dividends tax payable. What is the date of the dividend? What date does the dividends tax
have to be paid by?
15
DIVIDENDS TAX
STEVEN LEVER © FOR USE BY FLB STUDENTS ONLY
UPDATED 05/2012
16
SUGGESTED SOLUTION TO ILLUSTRATION 7A
DETAILS OF LOAN
STEP 1 APPLIES (YES OR NO) WITH DISCUSSION
R100,000 loan to
Jonathan Segal
Points 1 to 4 apply, but point 5 does not apply as
the loan was given in the capacity of an
employee not shareholder
Points 1 to 5 all apply. His personal shareholding
combined with connected person Segal (Pty) Ltd
is at least 20% to make the company a
connected person.
Points 2 to 5 apply. Point 1 does not apply.
Deemed dividends on loans does not apply when
the loan is given to a company
Points 1,2,3 and 5 apply. However point 4 does
not apply. A 8% shareholding is insufficient for
him to be a connected person to the company.
Points 1 to 5 apply
R200,000 loan to
Jonathan Segal
R300,000 loan to
Segal (Pty) Ltd
R40,000 loan to
Harry Liebesman
R500,000 loan to
James Cameron
R600,000 loan to
Melancholy PLC
$70,000 loan to
Natasha Krinsky
$80,000 loan to
Krinsky Family
Trust
R90,000 to Greg
Knight
Points 3 to 5 apply. The loan is not given to a
natural person, nor is the loan given to a resident
Points 1,3,4 and 5 apply. The loan is not given to
a resident
Points 1 to 5 apply. Must use spot rate at year
end for loans in foreign currency
Points 1 to 5 apply
STEP 2 INTEREST
AT OFFICIAL
RATE
STEP 2 INTEREST
ACTUALLY PAID
NETT
INTEREST
DIFFERENCE
N/A
N/A
N/A
200,000 X 6,5% X
365/365 = 13,000
200,000 X 1% X
365/365 = 2,000
11,000
N/A
N/A
N/A
N/A
500,000 X 6,5% X
365/365 = 32,500
N/A
500,000 X 7% X
365/365 = 35,000
N/A
Limited to
nil
N/A
N/A
N/A
N/A
$80,000 X 8 X
6,5% X 89/365 =
R10,144
R90,000 X 6,5% X
151/365 = R2,420
N/A
$80,000 X 8 X 5%
X 89/365 =
R7,803
N/A
Nil
2340
2,420
15,761
Deemed dividend of R15,761 deemed declared on the last day of the financial year, i.e. 31 March
R15,761 X 15% = R2,364 dividends tax paid by the last day of April.
8. EXEMPTIONS FROM DIVIDENDS TAX
There are separate exemptions from dividends tax for
 Dividends other than dividends in specie
 Dividends in specie
16
DIVIDENDS TAX
STEVEN LEVER © FOR USE BY FLB STUDENTS ONLY
UPDATED 05/2012
17
8.1 DIVIDENDS OTHER THAN DIVIDENDS IN SPECIE
Dividends are exempt from dividends tax if the beneficial owner is:
 a company which is a resident;
 the Government, a provincial administration or a municipality;
 a public benefit organisation approved by the Commissioner in terms of section 30 (3) of the Act
 a trust contemplated in section 37A (closure rehabilitation trust);
 an institution, board or body contemplated in section 10 (1) (cA) (institutions providing scientific
knowledge, institutions providing necessary or useful commodities to the State, institutions
providing financial assistance to promote commerce, industry or agriculture)
 a fund contemplated in section 10 (1) (d) (i) or (ii) (pension, provident, retirement annuity or benefit
fund, including pension provident or retirement annuity preservation funds)
 a person contemplated in section 10 (1) (t) (parastatals such as CSIR, SAIDC, SANRAL, ARMSCOR and
its subsidiaries, traditional councils, traditional communities, regional electricity or water
distributors, development bank of SA, compensation funds for the compensation for occupational
disabilities Act)
 a shareholder in a registered micro business, to the extent that the aggregate amount of dividends
paid by that registered micro business to its shareholders during the year of assessment in which
that dividend is paid does not exceed the amount of R200 000;
 a person that is not a resident of SA and the dividend is paid by a non-resident listed company on
the JSE and the dividend is not a dividend in specie.
ILLUSTRATION 8A
Part a
Below are some shareholders that have shares in BATTY Ltd, a foreign dual listed company on the JSE.
State for which shareholders dividends tax would be paid:
1. Mr A, a SA resident
2. Mr B, a US resident
3. C Ltd, a SA company
4. D Inc, a foreign company
5. E Inc, a foreign company receiving a dividend in specie
6. The F trust
7. A nominee company who owns shares on behalf of G Ltd, a SA company
8. A nominee company who owns shares on behalf of Mr H
9. A tax exempt public benefit organisation
10. Government
Part b
If the company was an unlisted SA company, would the solution change?
17
DIVIDENDS TAX
STEVEN LEVER © FOR USE BY FLB STUDENTS ONLY
UPDATED 05/2012
18
SUGGESTED SOLUTION TO ILLUSTRATION 8A
Part a
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Dividends tax paid
No dividends tax paid
No dividends tax paid
No dividends tax paid
Dividends tax paid
Dividends tax paid
Dividends tax paid
Dividends tax paid
No dividends tax paid
No dividends tax paid
Part b
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Dividends tax paid
Dividends tax paid
No dividends tax paid
Dividends tax paid
Dividends tax paid
Dividends tax paid
Dividends tax paid
Dividends tax paid
No dividends tax paid
No dividends tax paid
8.2 EXEMPTION FROM AND REDUCTION OF TAX IN RESPECT OF
DIVIDENDS IN SPECIE
Where a company declares and pays a dividend that consists of a distribution of an asset in specie, that
dividend is exempt from the dividends tax to the extent that it constitutes a distribution of an asset in
specie if the person to whom the payment is made has, by the date of payment of the dividend,
submitted to the company—


a declaration by the beneficial owner in such form as may be prescribed by the Commissioner
that the portion of the dividend that constitutes a distribution of an asset in specie would, if
that portion had not constituted a distribution of an asset in specie, have been exempt from the
dividends tax if paid in cash and
a written undertaking in such form as may be prescribed by the Commissioner to forthwith
inform the company in writing should the beneficial owner cease to be a beneficial owner;
In addition, a dividend in specie is exempt if the beneficial owner forms part of the same group of
companies, as defined in section 41, as that company.
18
DIVIDENDS TAX
STEVEN LEVER © FOR USE BY FLB STUDENTS ONLY
UPDATED 05/2012
19
In addition, a dividend in specie is exempt if the dividend constitutes a disposal as contemplated in
paragraph 51A of the Eighth Schedule (transfer primary residence to individual from a company owned
by the individual.
In certain circumstances, the rate of dividend tax can be reduced where a double tax agreement
indicates a lower rate be used.
19
DIVIDENDS TAX
STEVEN LEVER © FOR USE BY FLB STUDENTS ONLY
UPDATED 05/2012
20
ILLUSTRATION 8B
A (Pty) Ltd declare a machine dividend in specie worth R800,000 to its 100% shareholder, B Ltd.
What are the dividends tax implications?
SUGGESTED SOLUTION TO ILLUSTRATION 8B
Dividends tax is not payable for distributions to companies. As long as the prescribed declaration has
been made to A (Pty) Ltd by B Ltd with an undertaking to contact them if shareholding changes, no
dividends tax is payable.
9. STC CREDITS
Companies may have STC credits available at the date when dividends tax is introduced (1 April 2012).
These credits may be used by the company within 2 years of the introduction of dividends tax until 31
March 2014.
The first step is to calculate the amount of STC credit that a company has available at 31 March 2012.
ILLUSTRATION 9A
A (Pty) Ltd declared a dividend and paid a dividend to shareholders on 5 January 2012. There was an
unutilised STC credit carried forward of R30,000 from this dividend payment. On 21 February 2012, the
company received a dividend of R70,000 from a listed company that they held shares in.
No further dividends were received or dividends were paid till 31 March 2012.
Calculate the amount of the unutilised STC credit when dividends tax was introduced.
SUGGESTED SOLUTION TO ILLUSTRATION 9A
The unutilised STC credit is R30,000 (unutilised STC credit from the previous dividends cycle) plus
R70,000 (current dividend received) = R100,000.
When a dividend is declared, the unutilised STC credit is allocated to each shareholder in the profit
sharing ratios.
20
DIVIDENDS TAX
STEVEN LEVER © FOR USE BY FLB STUDENTS ONLY
UPDATED 05/2012
21
ILLUSTRATION 9B
A (Pty) Ltd has an unutilised STC credit of R100,000 carried forward.
On 15 May, the company declared a dividend of R300,000. A (Pty) Ltd has two shareholders. B (Pty) Ltd
owns 70% of the company and Mr C owns 30% of the company.
Determine the amount of dividends tax payable across to SARS by A (Pty) Ltd for the dividend paid.
SUGGESTED SOLUTION TO ILLUSTRATION 9B
DIVIDEND DECLARED
STC CREDIT ALLOCATED
TOTAL
B (PTY) LTD
MR C
300,000
(100,000)
200,000
210,000
(70,000)
140,000
90,000
(30,000)
60,000
No dividends tax needs to be withheld for B Ltd as it is a company registered and controlled in SA and
thus exempt from dividends tax.
Dividends tax of R60,000 X 15% = R9,000 will be withheld and paid across on behalf of Mr C
The STC credit allocated to a company is disclosed to the company, who will add that STC credit to their
own existing unutilised STC credit.
If the STC credit is more than the dividend paid, any portion of the STC credit will be carried forward and
utilised for the next dividend pay-out.
ILLUSTRATION 9C
C (Pty) Ltd has an unutilised STC credit of R730,000 on 31 March 2012.
In addition, they received a dividend from B (Pty) Ltd of R210,000,in May which had an STC credit of
R70,000 allocated to it.
The company has two shareholders, Mr D and the E Family Trust. Mr D owns 60% of the company. The
company declared and paid a dividend of R500,000 on 31 August.
Due to a sudden cash windfall, the company paid out another R600,000 to shareholders on 1 December.
Calculate the amount of dividends tax payable.
21
DIVIDENDS TAX
STEVEN LEVER © FOR USE BY FLB STUDENTS ONLY
UPDATED 05/2012
22
SUGGESTED SOLUTION TO ILLUSTRATION 9C
Dividend in August
The unutilised STC credit is the R730,000 present at 31 March 2012 plus the R70,000 received from B
(Pty) Ltd when that company declared a dividend.
DIVIDEND DECLARED
STC CREDIT ALLOCATED
TOTAL
MR D
E FAMILY TRUST
500,000
(800,000)
(300,000)
300,000
(480,000)
(180,000)
200,000
(320,000)
(120,000)
TOTAL
MR D
E FAMILY TRUST
600,000
(300,000)
300,000
360,000
(180,000)
180,000
240,000
(120,000)
120,000
No dividends tax is payable.
Dividend in December
DIVIDEND DECLARED
STC CREDIT ALLOCATED
Dividends tax of R300,000 X 15% = R45,000 is payable by the company, R27,000 for Mr D and R18,000
for the E Family Trust.
10 REFUNDS SECTION 64L AND SECTION 64M
In various circumstances, refunds of dividends tax can be made.
This is done where dividends tax has been withheld incorrectly by the company.
Consider the situation where R100,000 dividends tax has been withheld by a company on a dividend
paid to S Ltd, a SA company.
 Normally there is no dividends tax on a dividend to a SA company
 However S Ltd did not fill in the form as required to disclose their status to the company paying
the dividend.
 4 months later, the necessary form is completed and S Ltd requests that the R100,000 tax
withheld by the company be refunded to them.
22
DIVIDENDS TAX
STEVEN LEVER © FOR USE BY FLB STUDENTS ONLY
UPDATED 05/2012
23
The following is relevant
 The company and not SARS will make a refund
 If the refund is requested before the dividends tax is paid across to SARS, the amount is simply
taken off the dividends tax payable.
 If the refund is requested after SARS has received the funds, but within 3 years of the dividend
payment, the company will refund the tax to S Ltd and then claim a refund from SARS.
 This refund can be done in 2 ways:
o If a dividend is paid within 1 year of the declaration being received by S Ltd, the amount
of the refund may be set off against the dividends tax collected for the subsequent
dividend
o If more than 1 year has passed, and an amount has still not been claimed back from
SARS, the company may claim back directly from SARS (as long as this is done within 4
years of the original dividend)
Similar rules apply for regulated intermediaries, but the 4 year rule does not apply to these
intermediaries.
DISCUSSION
B Ltd owns 50% of A Ltd.
A Ltd pays a dividend on 1 May 2012. A dividend of R85,000 is paid to B Ltd (R100,000 – R15,000
dividends tax). Normally no dividends tax would be withheld, but B Ltd has not submitted the required
documentation to A Ltd.
On 22 November 2012, B Ltd submit the required documentation to A Ltd, and A Ltd refund the R15,000
dividends tax to B Ltd.
On 1 May 2013, the company declared another dividend. This time A Ltd receives R30,000 dividend
without any withholding tax being taken off as the required forms have been completed. The company
withholds R3,000 dividend tax from other shareholders.
The company submits a return to SARS but indicates on the return that R3,000 was withheld but that a
refund was made in terms of section 64L, and no dividends tax is payable.
The company has to wait until 1 year after the revised declaration was given in by B Ltd. At this date, the
company is R12,000 out of pocket with the refund (R15,000 paid to B Ltd less the R3,000 not paid to
SARS for subsequent dividend payments)
On 23 November 2013, the company submits the required documentation to claim the R12,000 not yet
repaid to them. SARS refunds them as the claim was submitted within 4 years of the original dividend
date.
23
DIVIDENDS TAX
STEVEN LEVER © FOR USE BY FLB STUDENTS ONLY
UPDATED 05/2012
24
11. REBATES ON FOREIGN DIVIDENDS SECTION 64N
Foreign companies listed on the JSE are liable for the payment of dividends tax.
If any amount of dividends tax has been paid overseas, such amounts may be set off against local
dividends tax.
DISCUSSION
A foreign dual listed company on the JSE is liable to pay across R1,500,000 (15% of R10,000000 in
dividends paid to SA individuals ) to SARS. However the company has withheld R1,000,000 dividends tax
in respect of those same shareholders overseas, as there is a 10% dividends tax overseas.
In the return submitted to SARS, only R500,000 is paid across to SARS. SA shareholders still receive 85%
of the gross dividend.
Of the tax, 10% is paid across to the foreign country and 5% is paid across to SARS.
12.MISCELLANEOUS CONSIDERATIONS SECTION 64K
The beneficial owner must pay across dividends tax to SARS by the end of the following month if the
company or regulated intermediary has not withheld and paid the dividends tax across on their behalf.
If such amounts are not paid, the person responsible for the tax is responsible for payment.
(Shareholder for dividends in cash and companies for dividends in specie)
Interest is payable at the prescribed rate on late payments. Thus if a dividend is paid on 23 May, and
dividends tax is not paid across by the 30th of June, interest will be charged from 1 July on the
outstanding amount.
In certain circumstances, penalties may be imposed due to non-submission of returns.
SARS will use normal rules for assessment and recovery of tax.
Upon paying dividends tax, the required return as prescribed by SARS should be completed.
Any person



that is either a director or shareholder of a company paying a dividend,
such person being regularly involved in the management of an unlisted company,
may be held personally liable for any dividends tax not paid across, including all penalties and
interest imposed.
In certain circumstances such as where double tax agreements exist or whether dividends tax is paid in
more than one country, proof of such reduced rates used must be submitted with the return for
dividends tax.
24
DIVIDENDS TAX
STEVEN LEVER © FOR USE BY FLB STUDENTS ONLY
UPDATED 05/2012