Must a deemed dividend (for tax purposes) be reflected as an actual dividend?
29 April 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
Q: There exists a
debit loan in the client's books to a trust (where a beneficiary is also a
director of the lending company). No interest was charged on the debit loan account
and SARS consequently applied sec 64C2(g) and raised a deemed dividend after
the audit. My question is this: is the deemed dividend a real dividend? In
other words, does the company declare this as a dividend and the trust shows
this as a dividend received or is the dividends tax involved just a penalty tax
that may be offset against future dividends tax arising at the time of
declaring a real dividend?
A: The granting
of a loan or advance to a shareholder or connected person in relation to the
shareholder that was only deemed to be a dividend for purposes of section
64B. From an accounting or other point
of view the loan is still a loan – as was the intention when it was made and
The company did therefore NOT "declare this as a dividend”
and the trust can also NOT "show this as a dividend received”. There is NO "dividend's tax involved” as the
tax levied on these loans (made before 1 April 2012) was the secondary tax on
The tax so paid can also NOT "be off set against future
dividends tax arising at the time of declaring a real dividend”. This is because the "secondary tax on
companies” so paid did not constitute an STC-credit (as envisaged in section
When the dividend is subsequently declared and set-off
against the debt the dividends tax will be due.
Note, a deemed dividend (on the interest benefit after 1 April 2012)
does not arise – see section 64C(2).
Disclaimer: Nothing in this query and answer should be construed as
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
primary resources when taking a decision.