Code 4238 taxable local dividend – Where must this be declared on the tax return as I cannot find a section for this?
Important:
This answer is based on tax law year ending 28 February 2017.
Answer:
The comprehensive guide to the ITR12 return for individuals (on page 8) states the following:
“If you received dividends distributed by a Real Estate Investment Trust (REIT), the amount will be reflected next to source code 4238 on the IT3(b) certificate issued to you by the REIT. On your ITR12 return, insert this amount next to source code 4214 and in the description field insert the description as “ ‘income from a REIT”.”
We agree with this. The reason for this is that dividends (other than those received by or accrued to or in favour of a person that is not a resident or a dividend contemplated in paragraph (b) of the definition of ‘dividend’) distributed by a company that is a REIT doesn’t qualify for the section 10(1)(k) exemption from normal tax. It is also not interest – see also section 25BB.
Our telephone call also refers. I looked at the slides again and think you may be referring to the following part:
"…and the interest so incurred is not during that year of assessment subject to tax in the hands of the person to which the interest accrues…”
I agree that this statement can be confusing. The requirement, in terms of section 23M(2), is that “…the amount of interest so incurred is not during that year of assessment—
(aa) subject to tax in the hands of the person to which the interest accrues…”
If we interpret that we would say that interest that is exempt from normal tax, under section 10(1)(i) or partially so, would meet the section 23M(2)(i)(aa) requirement and that would mean that section 23M applies. Section 23M, a very complex section as it is, denies the deduction on strength of the EBITDA (basically) amount. It does not impact on the nature of the interest in the hands of the recipient.