What constitutes a dividend?

Although there are several exclusions to the general rule, South Africa applies a withholding tax on dividends declared by companies at a rate of 20%. It is essential to appreciate that such a withholding obligation for companies do not arise only on “ordinary” dividends but that the concept of what constitutes a dividend, goes much wider.

The Income Tax Act defines a “dividend” as:

“any amount transferred or applied by a company that is a resident for the benefit or on behalf of any person in respect of any share in that company, whether that amount is transferred or applied— 

(a) by way of a distribution made by; or 

(b) as consideration for the acquisition of any share in…”

The ambit of the definition is wide and includes, for example, the waiver of a loan owed by a beneficial owner of a share to the company if the reason for the waiver is causally related to, and hence in respect of, a share in that company. The waiver represents the transfer of an amount by way of a distribution by the company. The individual components of the definition, therefore, require closer scrutiny.

Amount

A dividend can constitute the transfer of cash to a holder of shares or the transfer of assets (dividend in specie). The value to be placed on the transfer of assets as a dividend in specie is their market value.

Transferred or applied by a company that is a resident

The word “transferred” encompasses a transfer of ownership of an asset, while the word “applied” would, for example, include the payment of a debt owed by a holder of shares or a payment to a person providing a service to a holder of shares.

For the benefit or on behalf of any person

The amount must be for the “benefit or on behalf of any person”. A person would benefit from the receipt or accrual of a dividend, but a person who pays, for example, a market-related consideration for an asset transferred by a company does not derive a “benefit”, since there is an equal quid pro quo.

In respect of any share in that company

An amount that is unrelated to a taxpayer’s shareholding will not be derived “in respect of” a share. For example, the purchase by a company of an asset at an arm’s length price from a holder of shares on the same terms offered to the public would not constitute a dividend because the amount transferred by the company to that holder would not have been transferred “in respect of” the holder’s shares in the company but by virtue of the arm’s length acquisition by the company of the asset.

In summary, what constitutes a “dividend” is a comprehensive concept and has a variety of applications. Taxpayer companies should remain alert when any shareholder transaction is involved to ensure that they comply with their withholding obligations.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Sweet tax breaks for diabetics

SARS provides individuals with two types of medical rebates. The first rebate is known as the section 6A rebate which is calculated in terms of your contribution to a medical aid scheme. The second rebate is the section 6B rebate which provides higher rebates to individuals with a qualifying disability.

SARS accepts diabetes as a qualifying disability.

Individuals who have been diagnosed with diabetes may be able to obtain a higher tax rebate in terms of the section 6B rebate. Firstly, the Taxpayer must have a valid ITR-DD. This is a form confirming the disability. It needs to be completed by both the Taxpayer and the relevant medical professional. Secondly, the ITR-DD must be accompanied by other supporting documentation and must be accepted by SARS before the Taxpayer will qualify for the higher s6B rebate. This means up to 33,3% of your qualifying medical expenses will be deductible from your tax.

To find out if you qualify for this disability, contact Annemieke at tax@zuydam.co.za so we can assess the possibility of obtaining the higher medical rebate in your next tax return. For more information about diabetes, visit www.sweetlife.org.za.

Annemieke Gregory, BComm (Law), LLB, Tax Compliance officer @ Zuydam Konsult

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

The 2019 Tax Season is here

The 2019 tax season officially started on 1 July 2019.

 

Different filing periods apply, depending on the way a taxpayer chooses to submit their return:

 

  • Taxpayers who use e-filing to submit their returns have from 1 July 2019 until 4 December 2019.
  • Provisional taxpayers have until 31 January 2020.
  • Taxpayers who prefer to visit a SARS branch to physically submit their returns may submit between 1 August and 31 October 2019.

 

Companies and close corporations are not subject to the above-mentioned deadlines since the deadline for such entities’ income tax returns is 12 months after year-end.

 

The income threshold for submitting returns was increased from R350 000 to R500 000 for employees who received a single source of income from one employer during the year of assessment.

 

A natural person or estate of a deceased person will therefore not be required to submit a return if their gross income consists solely of any one or more of the following:

 

  • Remuneration not exceeding R500 000 from a single source with no additional benefits or claimable allowances, and employees’ tax has been withheld in respect of that remuneration;
  • Interest income from South Africa (excluding a tax-free savings account) less than
    • R23 800 for a person younger than 65;
    • R34 500 person aged between 65 and 75; or
    • R23 800 for a deceased person’s estate;
  • Dividends where the individual was a non-resident throughout the year of assessment;
  • Amounts received or accrued from a tax-free savings account; and
  • Capital gains or losses of less than R40 000.

 

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Taxpayers’ right to have disputes resolved

In a recent Tax Court decision[1], the Tax Court confirmed that taxpayers have a right to have their disputes resolved in a court of law as enunciated in section 34 of the Constitution. However, they cannot rely on this right when they are using delaying tactics to prevent the matter from being heard.

 

In this regard, the South African Revenue Service (“SARS”) issued a revised assessment to the taxpayer in 2013 based on the under-declaration of income. The taxpayer’s objection to this assessment was disallowed and the taxpayer filed a notice of appeal at the end of 2014.

 

An appeal meeting was then held at the beginning of 2017 and in July 2017 SARS filed its statement of grounds of assessment.[2] The taxpayer appointed a representative and requested an extension to April 2018 to file his statement of grounds of appeal.[3] SARS, however, only granted extension until middle December 2017.

 

No further extension was requested by the taxpayer and by February 2018 SARS informed the taxpayer of its intention to apply for a default judgement against the taxpayer and thereafter obtained a date for the hearing in November 2018.

 

Days before the hearing the taxpayer (via a new representative) requested that the matter be postponed in order for him to obtain all relevant information. The Tax Court granted such postponement until the end of February 2019 and ordered the taxpayer to file his grounds of appeal on or before the date of the hearing. No such grounds were filed. Also, on the date of the hearing, the taxpayer applied for condonation and a further postponement to obtain information.

 

The Tax Court found that the taxpayer had sufficient information to lodge the objection (in 2014 already) and that he was also not entitled to expand on his grounds of appeal beyond that contained in his objection. The taxpayer also did not make use of the proper rules for discovery of information[4] if he believed that he needed additional information for his grounds of appeal.

 

The Tax Court held that the taxpayer was intentionally delaying the legal process in order to prevent it from being finalised and disobeyed a court order without providing substantial reasons for his non-compliance. SARS’ request for a default judgement was therefore granted.

 

The takeaway is that taxpayers must duly take note of the rules and timelines provided for with regards to dispute resolution and that the courts (and likely SARS) will not tolerate any unnecessary delaying tactics.

 

[1] TCIT 13868 BLF 27 February 2019.

 

[2] In terms of Rule 31(2) of the rules promulgated under section 103 of the Tax Administration Act, No. 28 of 2011. See Public Notice 550 (GG37819 of 11 July 2014).

 

[3] In terms of Rule 32.

 

[4] Rule 36.

 

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Company tax in South Africa

If you are self-employed or a business owner, you have to pay company tax in South Africa. How much business tax you pay and what deductions you can claim will depend on the size and type of your business.

 

What is company tax?

 

Company tax (also called, “corporate income tax”) is what keeps our economy functional. There exists different business categories, who all have to go through registration procedures and have to pay tax. Tax is a rather complicated matter, which is why a lot of people choose to rather pass it on to professional business accountants.

 

Who needs to pay company tax?

 

All registered businesses in South Africa have to pay company tax on their worldwide income to SARS. Companies based outside of South Africa, but operating in South Africa, must pay tax on income derived from within South Africa only. The type of companies that have to pay company tax in South Africa include:

 

  • listed and unlisted public companies
  • private companies
  • close corporations
  • co-operatives
  • collective investment schemes
  • small business corporations
  • share block companies
  • body corporates
  • public benefit companies
  • dormant companies

 

What steps must be taken?

 

  1. Register as a taxpayer. Every business liable to tax under the Income Tax Act, 1962, must register with SARS as a taxpayer. You can register once for all different tax types, using the client information system.

 

  1. Submit annual tax return. Every registered taxpayer must submit a return of income twelve months after the end of the financial year. Returns can be submitted electronically or manually via SARS.

 

  1. Submit provisional tax returns. Every company must submit provisional tax returns. Your first provisional tax return must be submitted six months from the start of the year, and the second at year-end, and must contain an estimate of the total taxable income earned or to be earned for that period. Payment of the tax must accompany the return. A third “top-up” payment may be made six months after year-end.

 

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)