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News & Press: Corporate Tax

Loans and Dividends Tax

27 January 2012   (1 Comments)
Posted by: SAIT Technical
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Loans & Dividends Tax
by Michael Stein


The new dividends tax, which is due to commence on 1 April 2012, has a special provision dealing with loans.Section 64E(4) applies when, during a year of assessment, an amount is owing to a company on a loan or advance provided by the company to a person that is

- not a company;

- a resident; and

- a connected person of the company.

It applies also when the amount is owing on a loan or advance made to a person that is

- not a company;

- a resident; and

- a connected person of any person contemplated above.

The company is, for the purposes of the dividends tax, deemed to have paid a dividend if the loan or advance is provided by the company by virtue of a share held in the company by a person contemplated above.

The amount of the dividend that is deemed to have been paid is deemed to be equal to the greater of

- the market-related interest on the loan or advance, less the amount of interest that is payable to the company on the loan or advance for the year of assessment;

- and nil.

The dividend is deemed to have been paid on the last day of the year of assessment. For the above purposes, ‘market-related interest’, in relation to a loan or advance provided by a company means the amount of interest that would be payable to the company on the amount owing to it on the loan were it provided for that period at the ‘official rate of interest’ as defined for fringe benefits purposes in para 1 of the Seventh Schedule to the Income Tax Act.

Comments...

Stephen M. Malebo says...
Posted 26 May 2015
If the loan was borrowed to an employees of the company, not a connected person and market related interest was was charged, can SARS still consider the loan as deemed dividend?????

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