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Must a deemed dividend (for tax purposes) be reflected as an actual dividend?

29 April 2015   (0 Comments)
Posted by: Author: SAIT Technical
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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 approved. 

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 companies. 

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 64J). 

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. 


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