Amendments relating to dividend exemptions in the context of incentive schemes

Author: Andrea Minnaar of ENSafrica Recent amendments were made to both the local dividend income tax exemption in section 10(1)(k)(i) of the Income Tax Act, 1962 (“the Act”) as well the foreign dividend income tax exemption in section 10B of the Act, in terms of the Taxation Laws Amendment Act, No. 31 of 2013. In terms of these amendments, the local and foreign dividend income tax exemptions will not be available to any dividend or foreign dividend:

Amendments relating to dividend exemptions in the context of incentive schemes

Author: Andrea Minnaar (ENS) Recent amendments were made to both the local dividend income tax exemption in section 10(1)(k)(i) of the Income Tax Act, 1962 (“the Act”) as well the foreign dividend income tax exemption in section 10B of the Act, in terms of the Taxation Laws Amendment Act, No. 31 of 2013. In terms of these amendments, the local and foreign dividend income tax exemptions will not be available to any dividend or foreign dividend: 

Ruling on the definition of 'listed shares' for purposes of the foreign dividend exemption

Author: Heinrich Louw (Cliff Dekker Hofmeyer) The South African Revenue Service (SARS) released Binding Class Ruling No 42 on 7 February 2014. The factual circumstances in respect of which the ruling was made are as follow: Company Y is a company incorporated and resident in foreign country Y. Company X is a company incorporated and resident in country X. Company X is also a wholly-owned subsidiary of Company Y. Company X is to be listed on the JSE Limited. Its business is investment in foreign debt instruments, on which it will receive interest returns.

On South African tax compliance, tax morality and taxpayers’ freedom to do tax planning – Canada, Ireland and South Africa are not worlds apart

The upcoming Budget Speech comes against the backdrop of a depressing South African growth rate, stubbornly high unemployment, a depreciating Rand (with more US tapering still to come), continued strikes in the mining sector, deadly service delivery protests and declining tax revenues. On a more positive note: In November 2013 Minister Gordhan pointed to the continued growth in tax compliance by South Africans and said: “… the ability to collect tax revenue …to finance the provision of public services and socioeconomic infrastructure has been a cornerstone of our democracy these 20 years.”

Contributed tax capital

The concept of contributed tax capital (CTC) was introduced into the Income Tax Act, No 58 of 1962 (the Act) with effect from 1 January 2011. Despite the concept forming part of our law for a number of years now, the question still often arises – what is contributed tax capital? The relevance of the concept of CTC is that it is one of the main exclusions from the definition of a dividend. A dividend is defined as any amount transferred or applied by a company that is a resident for the benefit of any person in respect of a share but does not include any amount transferred/applied that “results in a reduction of contributed tax capital

Treasury Plans to Tax Dividends Paid to Employees as Income

Changes proposed by the Treasury in the Taxation Laws Amendment Bill follow international trends in tightening the net on the use of salaries disguised as dividends. According to the explanatory memorandum published by the Treasury recently, many share schemes hold pure equity shares where the sole intent of the scheme is to generate dividends for employees as compensation for past

Proposed amendments to the foreign dividend exemption

By Toinette Beckert South African resident companies (and individuals) are required to include in their gross income any amount received or accrued by way of a foreign dividend, as defined. A “foreign dividend” is defined in section 1 of the Income Tax Act, 58 of 1962 (the “Act”) as including, inter alia, any amount that is paid or payable by a foreign company in respect of a share in that foreign company where that amount is treated as a dividend or similar payment by that foreign company for the purposes of the laws relating to –

Definition of foreign dividend

The South African Revenue Service (SARS) issued Binding Class Ruling 41 (Ruling) on 24 July 2013 regarding the question of whether a dividend distributed by a foreign company will constitute a ‘foreign dividend’ as defined in section 1 of the Income Tax Act  No. 58 of 1962 (the Act).

Sale of shares – capital v revenue

Background ITC 13003 [2013] involved the disposal of shares by a taxpayer and whether the proceeds realised constituted gross income and were of a revenue nature. The taxpayer happened to be a Special Purpose Vehicle and it was argued that the proceeds of the sale of shares were of a capital nature. There were also additional costs incurred which were closely associated with the acquisition of the shares in question. These costs incurred were the so-called ’equity-kicker’ and ‘indemnity costs’.

Changes To The Taxation Of Dividends In Employee Share Schemes

Author: Stephan Spamer & Mareli Treurnicht (ENS) As a general rule, subject to certain exceptions, local dividends received and accrued to a South African tax resident are exempt from normal tax in terms of section 10(1)(k) of the Income Tax Act, 1962 (“ITA”). One such exception applies to employee share schemes by virtue of the application of section 10(1)(k)(i)(dd).