The issue pertaining to whether a trust is liable for dividends tax should a company pay a dividend to the trust as the registered owner of the shares has recently been clarified by SARS. By way of background, dividends tax must be paid by the beneficial owner, the concept being defined as the person that is entitled to the benefit of the dividend attaching to a share.
SARS has now indicated that, should one be dealing with a vesting trust where the beneficiary has a vested right to the underlying shares and the dividends, the beneficiary will be deemed to be the beneficial owner. A company that is a vested beneficiary of such a trust will be deemed to have a vested right to the underlying dividend. In the case of a so-called bewind trust, the beneficiary is in fact the beneficial owner of the shares and the dividend. In such an instance, it is possible to claim exemption from dividends tax to the extent that the beneficiary is a company.
In the case of a discretionary trust, the trust is deemed to be the beneficial owner of a dividend given the fact that the trustees would not have exercised their discretion in favour of the beneficiaries at any given point in time. Should the trustees have vested the dividend in a beneficiary by the date on which the dividend is paid or becomes payable by the company declaring it, the beneficiary is deemed to be the beneficial owner of the dividend. This will also be the case if the trustees have vested the dividend in a beneficiary after the date that the dividend is paid or payable, but before the end of the year of assessment of the trust. Should the trustees fail to vest the dividend during the same year of assessment in which it is received by or accrues to the trust, the trust will be deemed to be the beneficial owner of the dividend. The dividend will in such case form part of the trust capital and will lose its character as a dividend if it is vested in a beneficiary in a subsequent year of assessment.
Should a beneficiary be exempt from dividends tax in circumstances where the trustees have vested the dividend in such beneficiary after the date on which it has been paid by the company, the beneficiary would still be entitled to apply for a refund if the dividends tax has been withheld. However, the vesting of the dividend must occur during the same year of assessment in which the dividend has been received by or has accrued to the trust.
It has also been indicated that dividends tax does not become payable when the trustees of a trust vest a dividend in a beneficiary as dividends tax is only levied when a company declares and pays a dividend and not when a trust passes such dividend on to its beneficiaries.
DLA Cliffe Dekker Hofmeyr
Emil Brincker