My client deducted "drawings" from his business (private company) throughout the year for personal use. Therefore there is no "dividends declared" as such, nor date of dividends declared because he took it throughout the year. At the end of the year, do
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
The guidance provided in response to the first request was appropriate. You now raised new issues.
There is no threshold for dividends tax. The dividends tax in respect of all dividends, not qualifying for an exemption (section 64F) or a lower rate, are 20% irrespective of the amount thereof.
From the facts provided it is clear that at issue is whether the amount was “received or accrued in respect of services rendered…” If this was the case the amount would be gross income, also remuneration and subject to employees’ tax. This of course is in terms of paragraph (c) of the definition of gross income in section 1(1) of the Income Tax Act.
In terms of the definition, in section 1(1) of the Income Tax Act, a “dividend” means “any amount transferred or applied by a company that is a resident for the benefit or on behalf of any person in respect of any share in that company, whether that amount is transferred or applied by way of a distribution made by…”
In both instances, the Act uses the term “in respect of”. Judge Howie (in the Stevens case) said “…there is no material difference between the expressions ‘in respect of’’ and ‘by virtue of’ in paragraph (c). They connote a causal relationship between the amount received and the taxpayer’s services or employment.” (The reference to paragraph (c) is to the paragraph in the definition of gross income).
We submit that the same principal will apply in this instance. In other words, if the amount accrued to the individual in its capacity as a holder of a share (as opposed to a provider of a service as indicated above) the causal relationship between the share and the amount transferred (the drawing) exists and a dividend arises. The liability for the dividends tax will arise when the dividend is paid – see the definition of paid in this respect.
If the ‘drawings’ are made before the accrual of the amount in respect of services rendered, or the dividend is paid, a debt may arise. There will then be a taxable benefit, or a deemed dividend (section 64E), if the rate of interest is lower than the market-related interest.