Is there an exemption for interest income re-classified as a dividend?
30 January 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
Q: I have a query regarding section 8F of the Income Tax Act (ITA) and its
interaction with section 64FA of ITA. Section8F of ITA reclassifies interest to
a dividend in specie for purposes of the Act. The question is whether the
dividend in specie is exempt where it is paid from one SA company to another SA
resident company. The wording of section 64FA of ITA is a problem in this
regard in that if the payment ‘had not constituted a dividend in specie’ it
would have been interest, not a cash dividend.
you have any insight into whether SARS in practice lets companies claim the
exemption from DT in such circumstances, notwithstanding the wording of s64FA?
A: We agree that the wording in
section 64FA(1)(a)(i) of the ITA is problematic, as the amount distributed
would not have qualified for exemption under section 64F of the ITA, if it was
not a dividend in specie under s64FA as noted.
are not aware of any current SARS practice in this regard and a similar problem
exists for section 8FA of the ITA. However both provisions are still new (i.e. effective
dates of 1 April 2014) so we probably will only start seeing SARS practice on
assessment during 2015 or 2016.
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constituting tax advice or a tax opinion. An expert should be consulted for
advice based on the facts and circumstances of each transaction/case. Even
though great care has been taken to ensure the accuracy of the answer, SAIT do
not accept any responsibility for consequences of decisions taken based on this
query and answer. It remains your own responsibility to consult the relevant
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