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Income Tax Act, 1962 (Act 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—

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 the dividends in respect of which are determined with reference to a rate of interest, so much of the amount of any dividend received or accrued as exceeds an amount determined at a rate of 15 per cent;
(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

‘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.

[Subsection (1) amended by section 34(1) of Act No. 17 of 2017]

 

 

(2) Where a company disposes of shares in another company 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—
(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.

[Subsection (2) amended by section 34(1) of Act No. 17 of 2017]

 

(3) For the purposes of subsection (2), the amount that must be included in the income of the taxpayer is limited to the amount of the debt contemplated in paragraph (c) of that subsection.