Page 568 - SAIT Compendium 2016 Volume2

IN 64 (3) Income Tax acT: InTeRPReTaTIon noTes IN 65 (2)
the right of use and occupation attaching to the share.* The capital gain or capital loss made by the person acquiring the immovable property is deferred until the person actually disposes of it. This roll-over treatment is achieved by carrying across to the immovable property details of the cost and date of acquisition of the shares, cost and date of effecting improvements, usage, and any market valuation performed on valuation date.†
Capital gains may arise on conversion of a company to a share block company as a result of the disposal of the right of use and occupation to holders of the company’s shares. For more information see the draft Comprehensive Guide to Capital Gains Tax (Issue 5) which is available on the SARS website.
12. Dividends tax
Dividends tax came into operation on 1 April 2012. For cash dividends it is a withholding tax imposed on holders of shares comprising individuals, trusts and non-residents. A cash dividend paid to a holder of shares comprising a resident company is exempt from dividends tax under section 64F(1)(a) provided that the required formalities are complied with. Since a qualifying entity is a resident company, it will not be liable for dividends tax as long as it has submitted to the distributing company or a regulated intermediary a declaration in the prescribed form that the dividend is exempt from dividends tax under section 64F and a written undertaking to notify the company or regulated intermediary should the circumstances affecting the exemption change.
A resident company that distributes a dividend in specie is potentially liable for dividends tax subject to the exemptions contained in section 64FA. Section 64FA(1)(d) exempts from dividends tax any dividend that constitutes a disposal contemplated in paragraph 67B(2) of the Eighth Schedule. Such a disposal occurs when a share block company distributes immovable property to a holder of its shares (see 11).
13. Conclusion
In conclusion–
• only the levy income of qualifying entities is fully exempt from income tax;
• the sum of other income received by qualifying entities is subject to a basic exemption;
• qualifying entities are excluded from the payment of provisional tax and are not required to submit provisional tax
returns;
• bodies corporate and share block companies qualify for an automatic exemption from income tax and no pre-approval
by the Commissioner is required; and
• associations of persons are required to apply for approval with the Commissioner at the TEU in order to qualify for
exemption from income tax under section 10(1)(e)(i)(cc).
Legal and Policy Division
SOUTH AFRICAN REVENUE SERVICE Date of 1st issue : 22 February 2012
Date of 2nd issue : 6 November 2012
INTERPRETATION NOTE: NO. 65 (Issue 2)
DATE: ACT: SECTION: SUBJECT:
CONTENTS
Preamble
1. Purpose
2. Background
3. The law
4. Application of the law
4.1 Deemed inclusion in income – general
4.2 Deemed inclusion in income – trading stock applied for private or domestic use or consumption [section 22(8)
(a)]
4.3 Deemed inclusion in income at market value [section 22(8)(b)]
4.3.1 Trading stock donated otherwise than under section 18A [section 22(8)(b)(i)]
4.3.2 Trading stock disposed of otherwise than in the ordinary course of trade for a consideration less than
its market value [section 22(8)(b)(ii)]
4.3.3 Distribution of trading stock in specie [section 22(8)(b)(iii)]
* Section 10(b) of the Share Blocks Control Act.
† For more on paragraph 67B, see paragraph 13.6 of the Draft Comprehensive Guide to CGT (Issue 5).
5 February 2014
INCOME TAX ACT 58 OF 1962
SECTION 22 (8)
TRADING STOCK – INCLUSION IN INCOME WHEN APPLIED, DISTRIBUTED OR DISPOSED OF OTHERWISE THAN IN THE ORDINARY COURSE OF TRADE
560 saIT comPendIum oF Tax LegIsLaTIon VoLume 2