n Business Tax and Company Law Quarterly - Dividends in many instances may no longer be exempt from tax

Volume 3, Issue 1
  • ISSN : 2219-1585


The Taxation Laws Amendment Act 24 of 2011, promulgated on 10 January 2012 (all of 257 pages, comprising English and Afrikaans versions) contains numerous amendments to various sections of the Income Tax Act 58 of 1962 ('the Act'). Many of the amendments deal with the taxation of dividend income. These amendments seem to be targeted at anti-avoidance measures.

The first amendment discussed is section 8E of the Act. The most notable amendment to section 8E will cause dividends to be taxable on any shares on which the dividend is calculated with reference to an interest rate and the share is secured with a financial instrument.
Section 8EA of the Act is then discussed in relation to the taxability of dividends derived on third-party-backed shares. These are shares whose dividends are guaranteed with third parties other than the issuer.
Since the advent of section 8C of the Act in 2006, each year's tax amendments have brought about changes to the taxation of employee benefits in the form of share incentive schemes: 2011 is no different. Section 10(1)(), proviso (), was drafted in many forms prior to its promulgation, particularly in relation to share trusts, and now provides that dividends derived by beneficiaries of a trust who hold restricted equity instruments will be taxable if the trust owns shares other than equity shares.
Various other amendments have been introduced in respect of dividends: dividends acquired under a cession agreement will be taxable; dividends derived as borrower of a share under a scrip loan will be taxable; dividends derived on shares acquired that relate to manufactured dividends paid under a scrip loan will be taxable; dividends derived within 45 days before the disposal of shares will be taxable.

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