1. Do we need to declared dividends tax on preference shares dividends paid (between SA resident companies)? 2. Is this also a cash dividend for purposes of the DTR01 form?
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
As defined in section 1(1) of the Income Tax Act, “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:
(a) by way of a distribution made by …”
The use of the words ‘any share’ therefore doesn’t limit it to equity shares and will include dividends in respect of preference shares. The exemption, provided for in section 64F(1)(a) or in section 64FA(1) (where the distribution is an asset in specie), applies if the beneficial owner of the dividend is a resident of the RSA (the recipient company).
The dividend will be a ‘cash dividend’ as you say, if it is not an in specie distribution of an asset.