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Income Tax Act, 1962 (Act No. 58 of 1962)

Department of Finance

Practice Note No. 1

Deemed Dividend: Section 8B of the Income Tax Act, 1962 (The Act)


Date: 1 March 1985


Section 8B of the Act provides that where any amount is paid or any asset is, distributed by a private company to any shareholder of such company by way of any advance or loan (including any form of credit), or any payment is made by such company on behalf of such shareholder such advance, loan or payment shall in certain circumstances be deemed to be a dividend received by the shareholder.


In terms of the discretionary power vested in the Commissioner for Inland Revenue by section 8B(3)(a) of the Act it has been decided to accept that where a private company 'has made any advance, loan or payment as contemplated in section 8B(1) of the Act, to any shareholder (shareholder A) of that private company, and the obligations of, shareholder A to the private company resulting from the advance, loan or payment in question, are subsequently assumed by another shareholder (shareholder B) of that company, such assumption will not give rise to a deemed dividend in the hands of shareholder B for the purposes of the said section 8B.