Page 326 - SAIT Compendium 2016 Volume2

IN 18 (3) Income Tax acT: InTeRPReTaTIon noTes IN 18 (3)
Example 61 – Amount of rebate for foreign taxes on dividends
Facts:
Company Y, incorporated in Australia, declared a cash dividend of R1 million on shares listed on the Johannesburg Stock Exchange to its South African resident holders of shares. 50% of the holders are natural persons and 50% are companies, each person holding less than 10% of the shares in Company Y.
The holders, which are companies, complied with the necessary requirements and are exempt from dividends tax under section 64F(1)(a). Company Y pays the dividend of R1 million to Regulated Intermediary A resulting in a potential dividends tax liability of R75 000 (R1 million × 50% × 15%) for the holders who are natural persons without taking into account any rebates for foreign taxes.
Company Y withheld Australian tax of R100 000 (R1 million × 10%)* from the dividend paid to Regulated Intermediary A in accordance with the tax treaty between Australia and South Africa.†
Result:
The amount of the rebate under section 64N(2) is equal to the amount of foreign taxes paid. Foreign tax of R100 000 (R1 million × 10%) was withheld by Company Y from dividends paid to the resident individual and company holders of shares. Foreign taxes paid must be deducted from dividends tax to be withheld by Regulated Intermediary A. Dividends tax to be withheld by Regulated Intermediary A is calculated as follows:
R Dividends tax to be withheld by Regulated Intermediary A
– Individuals (R1 million × 50% × 15%)
Less: Rebate for foreign taxes on dividends – Individuals (R1 million × 50% × 10%)
Dividends tax to be withheld and paid to SARS by Regulated Intermediary A
Note:
75 000 (50 000) 25 000
In relation to the dividends paid to holders of shares who are companies no rebate is available as there is no dividends tax against which the rebate could be deducted and the amount of the rebate is accordingly nil.‡ The foreign tax of R50 000 that was withheld by Company Y from dividends paid to holders of shares who are companies are not allowed as a rebate against dividends tax to be withheld by Regulated Intermediary A from the dividends paid to the individual holders of shares
8.3 Limitation on amount of rebate for foreign taxes on dividends [section 64N(3)]
The amount of the rebate must not exceed the amount of dividends tax imposed on the foreign dividend.
This means that in the case of a bene cial owner that is not liable for dividends tax as a result of the exemptions provided for under section 64F, the amount of the rebate is limited under section 64N(3) to nil because the amount of
dividends tax imposed on the foreign dividend is nil.
Example 62 – Limitation on amount of rebate for foreign taxes on dividends
Facts:
Company Y, incorporated in Australia, declared a cash dividend of R1 million on shares listed on the Johannesburg Stock Exchange to its South African resident holders of shares. 50% of the holders are natural persons and 50% are companies, each person holding less than 10% of the shares in Company Y.
The holders, which are companies, complied with the necessary requirements and are exempt from dividends tax under section 64F(1)(a). Company Y pays the dividend of R1 million to Regulated Intermediary A resulting in a potential dividends tax liability of R75 000 (R1 million × 50% × 15%) for the holders who are natural persons without taking into account any rebates for foreign taxes.
Company Y withheld Australian tax of R160 000 from the dividend paid to Regulated Intermediary A in accordance with the tax treaty between Australia and South Africa. Assume that Company Y was obliged to withhold foreign tax at a rate of 16% and that the limitation of 15% under article 10 of the tax treaty does not apply.§
Result:
The amount of the rebate is equal to the amount of foreign taxes of R80 000 (R160 000 × 50%) withheld from the dividends paid to holders of shares who are individuals. The rebate is, however, limited under section 64N(3) to the amount of dividends tax of R75 000 payable on dividends paid to holders of shares who are individuals:
Dividends tax payable by Regulated Intermediary A – Individuals Less: Rebate for foreign taxes, limited to amount of dividends tax Dividends tax payable to SARS by Regulated Intermediary A
R
75 000
(75 000) Nil
In relation to the dividends paid to holders of shares who are companies no dividends tax is payable and the amount of the rebate is nil.¶
* Assume withholding tax is 10% for purposes of this example.
† Article 10(2)(b) of the tax treaty between South Africa and Australia. ‡ Assume withholding tax is 10% for purposes of this example.
§ Article 10(2)(b) of the tax treaty between South Africa and Australia ¶ Sections 64F and 64N(3).
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