An overview of the proposals in the Draft Taxation Laws Amendment Bill.
1. Dividends paid on unvested shares held via employee share schemes will be taxed as remuneration in the hands of the employee, not as exempt dividends. Such dividends will be exempt from the Dividends Withholding Tax and be a deductible expense for the employer, like other remuneration.
What this means:
Employees receiving dividends from restricted shares acquired from their employer will in future incur employees' tax on this income, instead of the Dividend Withholding Tax (15%). For employees earning over R638 601pa, the tax to be levied will be at the marginal rate of 40%. For lower income earners, earning under R258 750pa, this will be between 0-25%. This change will apply equally to senior management incentive plans as to broad-based schemes operated via BEE trusts. It will also entail additional PAYE compliance processes by employers who operate such schemes. While Treasury understandably wants to stop abuse of the tax system, by for example senior executives being paid exempt dividends instead of salary, the change has very broad and far-reaching consequences. It will be interesting to see how unions, for example, react to their members now suffering income tax on BEE dividends. Many BEE arrangements also relied on funding models which assumed dividends would be tax exempt.
Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.