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

Department of Finance

Practice Note No. 25

Excessive Remuneration and Other Charges


Date: 16 August 1994


1) Before 1990 it was standing practice to disallow in the hands of a company some or all of the remuneration paid to a director or employee who is a shareholder if such remuneration was regarded as excessive in relation to the services rendered by the shareholder to the company. The amount disallowed was treated as a dividend in the hands of the shareholder.


2) Following upon the exemption from tax of dividends in 1990 the aforementioned practice was discontinued as from 1 March 1990. The effect hereof is that from that date the full amount of excessive remuneration is taxable in the hands of the shareholder concerned.


3) The practice in regard to excessive remuneration is not limited to directors' fees and salaries, but also applies to interest and rental charges and administration and other fees.