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Income Tax Act, 1962 (Act 58 of 1962)

Chapter II : The Taxes

Part I : Normal Tax

8E. Dividends derived from certain shares and equity instruments deemed to be income in relation to recipients thereof

[Heading substituted by section 14(1)(a) of the Taxation Laws Amendment Act, 2016 (Act No. 15 of 2016) - commenced 1 January 2017]

 

(1)        For the purposes of this section—

 

"affected instrument"

[Definition deleted by Revenue Laws Amendment Act, No. 32 of 2004];

 

"date of issue"

in relation to a share in a company, means the date on which—

(a) the share is issued by the company;
(b) the company at any time after the share has been issued undertakes the obligation to redeem that share in whole or in part; or
(c) the holder of the share at any time after the share has been issued obtains the right to require that share to be redeemed in whole or in part, otherwise than as a result of the acquisition of that share by that holder;

 

"equity instrument"

means any right or interest the value of which is determined directly or indirectly with reference to—

(a) a share; or
(b) an amount derived from a share;

[Definition inserted by section 14(1)(b) of the Taxation Laws Amendment Act, 2016 (Act No. 15 of 2016) - commenced 1 January 2017]

 

"financial instrument"

means any—

(a) interest-bearing arrangement; or
(b) financial arrangement based on or determined with reference to a specified rate of interest or the time value of money;

 

"hybrid equity instrument"

means—

(a)        any share other than an equity share, if—

(i)        the issuer of that share is obliged to redeem that share in whole or in part; or

(ii)        that share may at the option of the holder be redeemed in whole or in part,

within a period of three years from the date of issue of that share;

(b)        any share other than a share contemplated in paragraph (a), if—

(i)        

(aa) the issuer of that share is obliged to redeem that share in whole or in part within a period of three years from the date of issue of that share;
(bb) that share may at the option of the holder be redeemed in whole or in part within a period of three years from the date of issue of that share; or
(cc) at any time on the date of issue of that share, the existence of the company issuing that share—
(A) is to be terminated within a period of three years; or
(B) is likely to be terminated within a period of three years upon a reasonable consideration of all the facts at that time; and

(ii)        

(aa) that share does not rank pari passu as regards its participation in dividends or foreign dividends with all other ordinary shares in the capital of the relevant company or, where the ordinary shares in such company are divided into two or more classes, with the shares of at least one of such classes; or
(bb) any dividend or foreign dividend payable on such share is to be calculated directly or indirectly with reference to any specified rate of interest or the time value of money;

[Paragraph (b) substituted by section 14(1)(c) of the Taxation Laws Amendment Act, 2016 (Act No. 15 of 2016) - commenced 1 January 2017]

(c)        any preference share if that share is—

(i)        secured by a financial instrument; or

(ii)        subject to an arrangement in terms of which a financial instrument may not be disposed of,

unless that share was issued for a qualifying purpose

(d)        any equity instrument the value of which is determined directly or indirectly with reference to—

(i) a share contemplated in paragraph (a) or (b) or a preference share contemplated in paragraph (c); or

(ii)        an amount derived from a share or preference share contemplated in subparagraph (i); or

[Paragraph (d) inserted by section 14(1)(d) of the Taxation Laws Amendment Act, 2016 (Act No. 15 of 2016) - commenced 1 January 2017]]

(e) any equity instrument, other than an equity instrument contemplated in paragraph (d), if that equity instrument is subject to a right or arrangement that would have constituted a right of redemption or security arrangement contemplated in paragraph (a), (b) or (c) had that right or arrangement applied in respect of the share with reference to which the value of that equity instrument is directly or indirectly determined;

[Paragraph (e) inserted by section 14(1)(d) of the Taxation Laws Amendment Act, 2016 (Act No. 15 of 2016) - commenced 1 January 2017]

 

"preference share"

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

 

"qualifying purpose"

means a qualifying purpose as defined in section 8EA(1).

 

(2) Any dividend or foreign dividend received by or accrued to a person during any year of assessment in respect of a share or equity instrument must be deemed in relation to that person to be an amount of income accrued to that person if that share or equity instrument constitutes a hybrid equity instrument at any time during that year of assessment.

[Subsection (2) substituted by section 14(1)(e) of the Taxation Laws Amendment Act, 2016 (Act No. 15 of 2016)]

 

(2A) Where any share or preference share that was issued in terms of an agreement, all the terms of which were finally agreed to before 1 April 2012 by all the parties to that agreement, constitutes a hybrid equity instrument solely by reason of a right of redemption or a security arrangement acquired in accordance with the terms of that agreement and that right or arrangement is cancelled on or after 26 October 2016 and on or before 31 December 2017—
(a) the provisions of subsection (2) will not apply in respect of any dividend or foreign dividend that accrues in respect of that share after the date of cancellation of that right or arrangement; and
(b) the cancellation of that right or arrangement must not be treated as a disposal of that share if no consideration is payable in respect of that cancellation.

[Subsection (2A) substituted by section 14(1)(f) of the Taxation Laws of Amendment, 2016 (Act No. 15 of 2016)]

 

(3)        [Subsection (3) deleted by Revenue Laws Amendment Act, 2004 (Act No. 32 of 2004)]

 

(4)        [Subsection (4) deleted by Revenue Laws Amendment Act, 2004 (Act No. 32 of 2004)]