Page 86 - Companies & Dividend Tax

Acquisition and Disposal of Shares

Investors

Par 19: Losses on the disposal of certain shares (SILKE 17.10.5.5)

• This paragraph of the Eighth Schedule targets dividend stripping transactions in
consequence of share buy-backs, liquidation, winding-up or deregistration of a
company.

• It is primarily applicable to resident companies. Resident companies do not pay
any Dividends tax and local dividends accrued are exempt. Paragraph 19(1)(a)
deals with exempt dividends (defined in paragraph 19(3)(b)). Exempt dividends
means any dividend or foreign dividend that is exempt in terms of sections
10(1)(k)(i), 10B(2)(a) and 10B(2)(b) and exempt from RSA Dividends Tax.

• The capital loss must be disregarded of any amount received above the amount
of exempt dividends. Therefore any capital loss in excess of the exempt dividend
would still be allowable. Note that if the dividend received by the holder of
shares was subject to Dividends Tax, paragraph 19(1)(a) will not apply.

• Paragraph 19(1)(b) deals with “extraordinary exempt dividends” (defined in
paragraph 19(3)(c)). “Extraordinary” adds two additional criteria to exempt
dividends, namely an 18-month holding period before the declaration of the
dividends and a dividend amount of 15% above the proceeds received.

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