Is a dividend paid to a trust subject to the 15% dividends tax?
29 May 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
trust owns 100% of the shares in a company. The company declares a dividend to
the trust. Is the trust liable to pay dividends tax or does the dividend tax
become a liability only when a natural person gets the dividend paid out of the
One of my
clients went to a seminar presented by a trust specialist. He is advising his
attendees to pay a minimal salary from the company (they are the directors) and
the rest to be paid out as a dividend to the trust. He is specifically telling
them that there will be no dividend tax liability this way.
My view is
firstly the directors are the ones rendering a service and should be paid
accordingly for these. They should be taxed on their actual remuneration. Any
dividends that are declared to another company would not be paying dividends
tax, however any dividends declared to a natural person the 15% dividend tax
will apply. I would assume the trust would pay the 15% dividend tax as well?
agree with your view.
The trust is
liable to pay the dividends tax at 15% and the company will not be entitled to
pay the dividend without withholding the dividends tax. We accept that
the trust beneficiaries do not have a vested right to the dividend. That
would however only make a difference if a beneficiary with a vested right
qualifies for an exemption from the dividends tax or for a lower rate of
overlooked by the client (possibly the presenter of the seminar) was section
10(1)(k)(i)(ii) of the Income Tax Act. It specifically provides that a
dividend in respect of services rendered does not qualify for the exemption
from normal tax. The trust will therefore receive the dividend as taxable
earlier, we agree that proviso (ii) to paragraph (c) of the definition of gross
income in section 1(1) of the Income Tax Act would apply – in other words the
director will have to declare the amounts paid to the trust as his or her gross
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