Page 17 - P6 Slide Taxation - Lecture Day 4
P. 17
EXCLUDED FROM DEFINITION OF
DIVIDEND – (2)
• Transfer of shares in company making the transfer (capitalisation issue)
• Effectively means that retained earnings/share premium are capitalised.
• Example: “each shareholder will receive one capitalisation share for every 5
ordinary shares held”
How is retained earnings capitalised?
Dr. Retained earnings / share premium
Cr. Share capital
• Result:
The capitalisation shares received by the holder of shares = a distribution
made by the company, but does not qualify as a dividend, because any
distribution that constitutes shares is specifically excluded from the definition of
a dividend.
Note: A capitalisation issue does not increase Contributed Tax Capital. The
holders of shares does not pay anything for a capitalisation issue.
