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Dividends interest on loan
- 04 December 2023
- Low interest rate loans and loan subsidies
- The Tax Faculty Tax Specialist
This FAQ article is based on tax law for the year ending 29 February 2024.
1. The Problem / Facts
Is a debit loan balance regarded as a deemed dividend, or is only the interest-free portion considered a dividend?
2. Applicable Law
Income Tax Act Section 64E(4)
3. Application of the Law to the Facts
Where a debit loan exists and the interest charge on the outstanding balance is lower than the official interest rate, the difference will give rise to a dividend in specie. The dividend is deemed to have been paid on the last day of the year of assessment and the company will be liable for the dividends tax.
The capital is not deemed a dividend and the interest will accrue posing a tax risk should the loan and accrued interest be written off some time in the future.
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