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

Chapter II : The Taxes

Part I : Normal Tax

22B. Dividends treated as income on disposal of certain shares

 

(1) For the purposes of this section—

 

"deferral transaction"

means a transaction in respect of which the provisions of PART III of this Chapter were applied;

[Definition inserted by section 38(1)(a) of the Taxation Laws Amendment Act, 2018 (Act No. 23 of 2018), GG 42172, dated 17 January 2019 - effective 1 January 2019 (section 38(2)]

 

"exempt dividend"

means any dividend or foreign dividend to the extent that the dividend or foreign dividend is—

(a) not subject to tax under Part VIII of Chapter II; and
(b) exempt from normal tax in terms of section 10(1)(k)(i) or section 10B(2)(a) or (b).

 

"extraordinary dividend"

means, in relation to—

(a) a preference share, so much of the amount of any dividend received or accrued in respect of that share as exceeds the amount that would have accrued in respect of that share had that amount been determined with reference to the consideration for which that share was issued by applying an interest rate of 15 per cent per annum for the period in respect of which that dividend was received or accrued;

[Paragraph (a) substituted by section 38(1)(b) of the Taxation Laws Amendment Act, 2018 (Act No. 23 of 2018), GG 42172, dated 17 January 2019 - effective 19 July 2017 (section 38(3)]

(b) any other share, so much of the amount of any dividend received or accrued:
(i) within a period of 18 months prior to the disposal of that share; or
(ii) in respect, by reason or in consequence of that disposal,

as exceeds 15 per cent of the higher of the market value of that share as at the beginning of the period of 18 months and as at the date of disposal of that share; and

 

"preference share"

means a preference share as defined in section 8EA(1);

[Definition inserted by section 38(1)(c) of the Taxation Laws Amendment Act, 2018 (Act No. 23 of 2018), GG 42172, dated 17 January 2019 - effective 19 July 2017 (section 38(3)]

 

"qualifying interest"

means an interest held by a company in another company, whether alone or together with any connected persons in relation to that company, that constitutes—

(a) if that other company is not a listed company, at least—
(i) 50 per cent of the equity shares or voting rights in that other company; or
(ii) 20 per cent of the equity shares or voting rights in that other company if no other person (whether alone or together with any connected person in relation to that person) holds the majority of the equity shares or voting rights in that other company; or
(b) if that other company is a listed company, at least 10 per cent of the equity shares or voting rights in that other company.

 

(2) Subject to subsection (3), where a company disposes of shares in another company in terms of a transaction that is not a deferral transaction and that company held a qualifying interest in that other company at any time during the period of 18 months prior to that disposal, the amount of any exempt dividend received by or that accrued to that company in respect of the shares disposed of must—

[Words preceding section 22B(2)(a) substituted by section 38(1)(d) of the Taxation Laws Amendment Act, 2018 (Act No. 23 of 2018), GG 42172, dated 17 January 2019 - effective 1 January 2019 (section 38(2)]

(a) to the extent that the exempt dividend constitutes an extraordinary dividend; and
(b) if that company immediately before that disposal held the shares disposed of as trading stock,

be included in the income of that company in the year of assessment in which those shares are disposed of or, where that dividend is received or accrues after that year of assessment, the year of assessment in which that dividend is received or accrues.

[Section 22B(2) substituted by section 34(1) of  the Taxation Laws Amendment Act, 2017 (Act No. 17 of 2017)]

 

(3) Where a company disposes of shares in terms of a transaction that is not a deferral transaction within a period of 18 months after having acquired those shares in terms of a deferral transaction, other than an unbundling transaction and—
(a) within a period of 18 months prior to the disposal of those shares by that company an exempt dividend in respect of those shares accrued to or was received by a person that—
(i) disposed of those shares in terms of a deferral transaction; and
(ii) was a connected person in relation to that company at any time within that period,

that dividend must for purposes of this section be treated as a dividend that accrued to or was received by that company in respect of those shares within the period during which that company held those shares; and

(b) if that company acquired those shares (hereinafter referred to as ‘new shares’) in terms of that deferral transaction in return for or by virtue of the holding, by that company, of other shares (hereinafter referred to as ‘old shares’) that were disposed of in terms of that deferral transaction and an exempt dividend in respect of the old shares, other than a dividend consisting of new shares, accrued to or was received by that company within a period of 18 months prior to the disposal by that company of the new shares, that dividend must for purposes of this section be treated as an amount that accrued to or was received by that company as an exempt dividend in respect of the new shares.

[Section 22B(3) inserted by section 38(1)(e) of the Taxation Laws Amendment Act, 2018 (Act No. 23 of 2018), GG 42172, dated 17 January 2019 - effective 1 January 2019 (section 38(2)]