“You snooze you lose” if STC credits are not used in time
30 April 2014
Posted by: Author: Carin Grobbelaar
accumulated from the Secondary Tax on Companies (STC) regime can save
shareholders significantly by ensuring that less tax is imposed upon
shareholder dividends. But time is running out as the deadline to use
these STC credits is looming.
careful planning will need to be considered and this will need to be
implemented appropriately as soon as possible, to ensure these credits can be
used in time,” says Carin Grobbelaar, senior tax consultant at Grant Thornton
to Grobbelaar, 1 April 2014 marked the two-year anniversary of the new Dividend
Withholding Tax (DWT) regime being implemented. That means that companies now
only have one more year to use their STC credits before they are lost forever.
a general rule, DWT is a tax imposed on shareholders at a rate of 15% on the
gross amount of dividends received and this payment is triggered by the actual
payment of the dividend or when the amount becomes due and payable (whichever
is earlier),” she continues.
terms of the DWT regime's rules, a company is allowed to use its STC credit in
order to reduce its shareholder's DWT liability. These STC credits arose
from two possible sources - either from unused STC credits brought forward from
the final dividend cycle under the STC system or from any new pro-rata portion
of STC credits which the company may have received under DWT (minus any
adds that the STC credit must be allocated pro-rata based on shareholding and
the company must notify the shareholders of the amount by which the dividend
reduced the STC credit of that company.
other words, where a company declares a dividend of R1 million and that company
has an STC credit of R750 000, the DWT liability will be payable only in
respect of the remaining R250 000. Accordingly, the DWT will be R37 500
(R250 000 x 15%) only and not a massive R150 000 (R1 million x 15%).
is because 75% of the dividend is not subject to DWT as a result of the use of
the STC credit,” says Grobbelaar. "The company must notify the shareholders
that its STC credit was reduced by R750 000 and that 75% (R1 million ÷ R750
000) of the dividend paid to each shareholder was not subject to DWT as a
result of the use of its STC credit.”
STC credit must be used within three years after the introduction of DWT in
light of this, the balance of all companies' STC credits will be deemed to be
nil on or after 1 April 2015.
If the dividend in the example above is paid only
after 1 April 2015, the full amount would have to be subject to DWT.
Thus, the amount of DWT will be R150 000 and not R37 000.
"It is critically important to use these STC credits
wherever possible before they expire to ‘exempt’ dividends to persons who would
otherwise be subject to DWT,” Grobbelaar concludes.