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Income Tax Act, 1962 (Act 58 of 1962)

Chapter II: The Taxes

Part VII: Secondary Tax on Companies

64C. Certain amounts distributed deemed to be dividends

 

 

(1)        For the purposes of this section

"share incentive scheme" means a scheme in terms of which not more than 20 per cent of the equity share capital of a company is -

(a) held by the directors and full-time employees of –
(i) such company; or
(ii) an associated institution, as defined in paragraph 1 of the Seventh Schedule, in relation to such company, in terms of a share incentive scheme carried on for their own benefit;
(b) held by a trustee for the benefit of such directors and employees under an employee share scheme as defined in section 95(1)(c) of the Companies Act; or

[Paragraph (b) amended by section 101 of Act No. 31 of 2013]

(c) collectively held by such directors and full-time employees, and such a trustee.

 

(2) For the purposes of section 64B an amount shall, subject to the provisions of subsection (4), be deemed to be a dividend declared by a company to a shareholder, where–
(a) any cash or asset is distributed or transferred by that company to or for the benefit of that shareholder or any connected person in relation to that shareholder;
(b) the shareholder or any connected person in relation to that shareholder is released or relieved from any obligation measurable in money which is owed to that company by that shareholder or connected person to the extent that the amount so owed was not already deemed to be a dividend declared by that company in terms of paragraph (g);
(c) any debt owed by the shareholder or any connected person in relation to that shareholder to any third party is paid or settled by that company;
(d) any amount is used or applied by that company in any other manner for the benefit of the shareholder or any connected person in relation to that shareholder;
(e) that amount represents the greater of—
(i) the difference between—
(aa) the taxable income or assessed loss of that company; and
(bb) the taxable income or assessed loss of that company without regard to section 31(2); and
(ii) nil;
(f) the company ceases to be a resident to the extent that the market value of all the assets of the company on the date immediately before the day on which the company ceases to be a resident exceeds-
(i) the liabilities of that company as at that date; and
(ii) the sum of the contributed tax capital of all the classes of shares of that company as at that date;
(g) any loan or advance is granted and made available to that shareholder or connected person in relation to that shareholder;
(h) that amount is incurred by that company in terms of an instrument in respect of which section 8F applies:

Provided that, for purposes of this subsection, in determining whether a person is a shareholder or connected person in relation to a shareholder in relation to any company, no regard must be had to any share that is a listed share;

 

(3)        [Deleted by the Revenue Laws Amendment Act, 2003].

 

(4)        The provisions of subsection (2) shall not apply—

(a) where the amount would have constituted a dividend as defined in section 1 without regard to paragraphs (i), (ii), (iii) and (iv) of that definition;
(b) where the amount constitutes remuneration in the hands of the shareholder or any connected person in relation to that shareholder or the settlement of any debt owed by the company to the shareholder or connected person
(bA) to the extent of any consideration received by that company in exchange for-
(i) the cash or asset distributed, transferred or otherwise disposed of; or
(ii) any other benefit granted as contemplated in subsection (2);
(c) to so much of any amount comtemplated in subsection (2)(a), (b), (c), (d) or (g) that-
(i) is distributed, transferred, released, relieved, paid, settled, used, applied, granted or made available for the benefit of any person; and
(ii) reduces the market value of all the assets of the company to an amount that is less than the liabilities of the company;
(d) to any loan granted in respect of which a rate of interest not less than the 'official rate of interest', as defined in paragraph 1 of the Seventh Schedule is payable by the shareholder or any connected person in relation to the shareholder;
(e) to any loan granted to the shareholder or any connected person in relation to the shareholder; if the shareholder or connected person is an employee of the company or an associated institution contemplated in paragraph 1 of the Seventh Schedule in relation to the company and such loan is granted under, and in compliance with the normal terms and conditions of, a loan scheme generally available to employees of the company or of the associated institution who are not shareholders;
(f) to any loan or credit granted to a shareholder of the company or any connected person in relation to the shareholder during any year of assessment of the company granting the loan or credit, if—
(i) such loan or credit is repaid or otherwise extinguished by not later than the end of the immediately succeeding year of assessment;
(ii) the amount thereof is not included in any subsequent loan or credit granted to the shareholder or any connected person in relation to the shareholder; and
(iii) the provisions of this paragraph have not been applied in the case of the company in any previous year of assessment;
(g) [deleted by Revenue Laws Amendment Act, No. 32 of 2004]; and
(h) [deleted by the Revenue Laws Amendment Act, 2003];
(i) to any loan or credit granted to a trust by a company to enable that trust to purchase shares in-
(i) that company;
(ii) the controlling company in relation to that company; or
(iii) an associated institution, as defined in paragraph 1 of the Seventh Schedule, in relation to that company,

with a view to the resale of those shares by that trust to employees of that company or that associated institution, under a share incentive scheme operated by the company or the associated institution for the benefit of those employees;

(j)        [deleted by Revenue Laws Amendment Act, No. 32 of 2004];

(k) to any amount contemplated in subsection (2)(a), (b), (c), (d) or (g) distributed, transferred, released, relieved, paid, settled, used, applied, granted or made available for the benefit of-

(i)        a shareholder forming part of the same group of companies as the company that is deemed to have declared the dividend; or

(ii) a connected person in relation to a shareholder if the connected person and the shareholder form part of the same group of companies as the company that is deemed to have declared the dividend:

Provided that if the profits of the company declaring the deemed dividend are reduced as a result of the dividend, this paragraph applies only to the extent that the profits of the shareholder or connected person, as the case may be are correspondingly increased; and

(l) to any amount contemplated in subsection (2)(a), (b), (c), (d) or (g) distributed, transferred, released, relieved, paid, settled, used, applied, granted or made available by a company for the benefit of any other company if-
(i) the company (whether alone or together with any other company forming part of the same group of companies as the company) directly or indirectly holds at least 20 per cent of the total equity shares in that other company; and
(ii) that other company does not hold any shares in the company.

 

(5)        Where any loan granted by a company to a shareholder or any connected person in relation to the shareholder—

(a)        was deemed to be a dividend declared by the company in terms of this section; and

(b)        is thereafter wholly or partly repaid by the shareholder or connected person,

the amount so repaid shall for the purposes of section 64B be deemed to be a dividend which accrued to the company concerned on the date on which such amount was repaid.

 

(6) For purposes of this section and section 64B, the dividend contemplated in subsection (2) shall respectively be deemed to have been declared by the company on the date that

(a)        the cash or asset is distributed or transferred, as contemplated in subsection (2)(a);

(b)        the obligation is released or relieved as contemplated in subsection (2)(b);

(c)        the debt is paid or settled as contemplated in subsection (2)(c);

(d)        the amount is used or applied as contemplated in subsection (2)(d);

(e)        the loan or advance is made available, as contemplated in subsection (2)(g) or

(f)        the amount is incurred as contemplated in subsection (2)(h).