Exempt Income-Relating to Dividends

Exemptions from Gross Income

What is the definition of a Dividend?

An amount distributed by a resident company

What does s10(1)(k)(i) state?

Dividends received from a South African resident company are exempt from normal tax

Who does the s10(1)(k)(i) exemption specifically apply to?

• Natural Persons and Corporate Entities

• Residents and Non-Residents

In what cases is dividend not exempt from normal tax?

• Dividends that form part of an amount that is paid as an annuity[s10(2)(b)]

• Amounts distributed by a Real Estate Investment Trust(REIT) or controlled company in respect of a REIT to a resident [proviso aa to s10(1)(k)(i)]

How is dividends paid?

It is withheld by the company and paid to SARS on behalf of the shareholder

What amount of dividend is included in a person’s gross income

The gross amount of a dividend before any dividends tax is deducted(par k)

What tax can dividends be subject to if not exempt from normal tax?

It may be subject to Dividends Tax

What is the definition of a foreign dividend?

As defined in s1 of the ITA it is an amount paid by a foreign company in respect of a share in that foreign company(not a resident company)

What amount does not qualify as a foreign dividends?

• If it constitutes a redemption of a participatory interest in a foreign collective investment scheme

• if it constitutes a share in foreign company

Whose gross income is a foreign dividend included in?

Only a residents Gross Income

What amount of foreign dividend is included in a person’s gross income

The gross foreign dividends before any withholding taxes are deducted (par k)

What is the taxpayer not entitled to if a foreign dividend is exempt from normal tax?

They are not entitled to deduct the foreign withholding taxes paid in respect of the foreign dividend from its South African normal tax payable

How is a Foreign dividend converted?

It is converted by applying the spot rate on the date the foreign dividend is received or accrued