In cases where the fair market value rent is not appropriate or cannot be determined, the value of the benefit is the income the corporation would have earned had the capital been productively employed. It is submitted that this same broad interpretation should be applied in the South African context. 31 WHLategan v CIR 2 SATC 16 (1926) 19. Canadian legislation includes provisions for tax benefits received by shareholders, which specifically include provisions for taxing the use of a motor vehicle for private purposes by a shareholder. north carolina discovery objections / jacoby ellsbury house Services are further defined in the Income Tax Assessment Act of 1936 as "any benefit, right (including the right in relation to, and an interest in, real or personal property), privilege or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided" in respect of a business relationship.90 The meaning of a "non-cash benefit" in the provisions for dividends tax is ascribed to the term "other property" due to the reference to non-cash benefits in the administration of the withholding tax on dividends. A dividend would therefore include any distribution made by a company to any of its shareholders, whether in money or other property.85 No particular guidance is obtained from these sections on what would constitute "other property". A distribution in specie refers to the distribution of an asset in its current form, rather than first liquidating it and distributing the proceeds. Can a dividend in specie be a transaction at an undervalue or a fraud on creditors under the Insolvency Act? What does that mean in practice though - what is a dividend in specie exactly? Furthermore, the context of the provisions contained in the Income Tax Act considered in this article, does not indicate findings contrary to the broad interpretation of the meaning of "dividend" and " in specie". The Seventh Schedule also provides specific guidance on valuing services, the right of use of motor vehicles, residential property, and other assets granted as benefits from a South African perspective. Taxable dividend distributions made by companies to shareholders are included in the taxable income of the shareholder in terms of the Canadian Income Tax Act reads as follows: "In computing the income of a taxpayer for a taxation year, there shall be included the total of the following amounts: (i) the total of all amounts, other than eligible dividends and amounts described in paragraph (c), (d) or (e), received by the taxpayer in the taxation year from corporations resident in Canada as, on account of, in lieu of payment of or in satisfaction of, taxable dividends."67. 24 hour Customer Support: +44 345 600 9355. International practices could also provide guidance on the dividends tax treatment of the granting of services or the right of use of assets for purposes of dividends tax in the South African context. 
tate orndorff related to paul orndorff. For the granting of a service or the right of use of an asset to be included, it would first have to constitute an "amount". B Ltd owns an asset X book value 100,000 market value 1M. 29 De Koker & Williams supra n 14 at para 25.7I. The definition of "dividend" in section 1(1) of the ITA is interpreted broadly to prevent avoidance of dividends tax by structuring distributions in a manner other than dividends.53 Based on these findings, the benefits included in the ambit of "taxable benefits" in section 2 of the Seventh Schedule to the ITA could indicate what the legislator intended to fall within the ambit of dividends in specie for ITA purposes, which includes free or cheap services and the right of use of assets such as residential accommodation and motor vehicles. In specie contributions involve the transfer of assets from an individual or company to a pension scheme. The findings from investigating international practices indicated that the granting of services or the right of use of assets constitutes dividends in Australia, the UK, and the USA, while in Canada these are taxed as shareholder benefits included in the shareholders' taxable income. 43 SARS What is a dividend in specie? The granting of services and the right of use of assets would thus fall within the ambit of a dividend if the company pays for the granting of services or the right of use of assets on behalf of a person in respect of a share. Jigs. 33 CIR v People's Stores (Walvis Bay) (Pty) Ltd 52 SATC 9. It is recommended that you save the document to a location of your choice prior to viewing. Section 1064 regards certain expenses of close corporations as distributions and applies to expenses incurred by a close corporation on behalf of any participator in the close corporation. School MANCOSA (Pty) Ltd - Durban; Course Title ACCOUNTING AUDITING; Uploaded By LieutenantCobra3285. 98 Para 75 of the Eighth Schedule 99 S 10B(2)(d) and Section 64EA 100 Kohla supra n 57 at 1431. The definition of a "dividend" underwent many amendments since 2007 to arrive at the definition as currently contained in the ITA. The dividend must specifically be declared as in specie. 88 S 21A(1) of the Australian Income Tax Assessment Act of 1936. A company must only make distributions out of profits available for that purpose. Guidance from the UK would indicate that in the South African context, any expenses paid for on behalf of a person in respect of a share would be interpreted as being included in the ambit of a dividend. A purchaser of UK land is under a duty to notify HMRC of a notifiable land transaction within 30 days after the effective date of the land transaction (section 76 of the Finance Act 2003 (FA 2003)). Bank holidays: Closed, Hudson Weir Insolvency Practitioners UK GAAP (FRS 102) illustrative financial statements for 2021 year ends. 38 CIR v Legal and General Assurance Society Ltd 1963 (3) SA 876 (A), 25 SATC 303, at 315. Dont include personal or financial information like your National Insurance number or credit card details. 3. 
Based on the above the definition of "dividend" does not contradict the interpretation that the intention of the legislator is to include other benefits within the ambit of the definition of "dividend" and is consistent with the modern purposive approach to interpret legislation. 69 S 15(1.2) of the Canadian Income Tax Act R.S.C. Now well take a look at the significance of a dividend in specie process in the context of a solvent company going through a liquidation procedure. 78 Hennessey "Another reason to avoid shareholder benefits" 2016 CTF 1 available at https://www.ctf.ca/ctfweb/EN/Newsletters/Canadian_Tax_Focus/2016/1/160103.aspx (accessed 2018-04-30). The granting of services or the right of use of assets has been argued as a "distribution,"45 consequently submitted as a distribution in specie. Assets involved need to be properly valued and assessed for suitability by the receiving scheme. B Ltd declares a dividend of 100,000 to be satisfied by the transfer of X to A Ltd. For chargeable gains purposes there are potentially two disposals. Owing to the fact that dividends "in specie" are treated differently for purposes of dividends tax in terms of their valuation, timing, and liability for the payment of the dividends tax consideration is also given to meaning of "in specie". Wed like to set additional cookies to understand how you use GOV.UK, remember your settings and improve government services. The third ultra-high-yield dividend stock that's a surefire buy in April is energy stock Antero Midstream ( AM 0.19%). In the context of dividends tax, this article posits that the granting of services or the right of use of assets in respect of shareholding could also be employed to avoid dividends tax implications if uncertainty regarding classification as dividends in specie is not clarified. Thanks (0) Share this content. The South African tax legislation has gone through many phases of tax reform; one of which started after the year 2000, which saw the adaptation of the tax system to conform to international tax law.61Specifically, with regard to the taxing of distributions to shareholders, the STC regime was replaced with the dividends tax regime in order to align it with international practices.62 Investigating the tax implications of distributions by entities to shareholders in the context of international practices could provide guidance whether the granting of services or the right of use of assets could constitute dividends for ITA purposes. Section 15(1) of the Canadian Income Tax Act provides for all other cases where wealth is extracted from a corporation other than through remuneration or investment income. Agencies such as the Internal Revenue Service (IRS) promulgate regulations and rules specific to their subject area, which are divided into 50 broad subject areas that are updated on a regular basis. Section 15(2), relating to shareholder debt, is not applicable to non-residents, ordinary lending practices, when the loan is repaid within one year, and when the debt is provided to an employee in respect of employment. Applying the guidance from the Australian Income Tax acts' regulation of distributions indicates that property includes non-cash benefits, which in turn include services and rights. This article posits that the provision for valuing fringe benefits in terms of the Seventh Schedule could also be considered in valuing such benefits granted to shareholders for dividends tax purposes. 49 Ahmad & Stern "Taxation for developing countries" in Chenery and Srinivasan Handbook of development economics (1989) 1065. The directors of a company may recommend that a dividend is satisfied with non-cash assets (ie that it is a dividend in kind or a dividend in specie) if the company's articles permit this and the requirements of CA 2006, Pt 23 are complied with. International experience could, however, still be considered as an important aspect as it could offer lessons learned from those experiences.66 The aim of this article is to consider international practices as a supplementary argument to the primary investigation performed in terms of the ITA in South Africa. The transfer of the asset may be effected by the subsidiary company declaring a dividend in kind also known as a dividend in specie. Furthermore, the context of the provisions contained in the ITA considered in this article does not indicate findings contrary to the broad interpretation of the meaning of "dividend" and "in specie" in the ITA. 16 De Koker & Williams supra n 14 at para 25.1C. This interpretation could be of assistance in interpreting what could be included in the ambit of "amount" for ITA purposes as "amount" includes property. 65 National Treasury Dividends versus return of capital: Revising the base for taxable distributions (2008) 12-13. 
of 1985. The Taxation Administration Act of 1953 regulates the withholding arrangements for dividends to nonresidents, which are found in divisions 12 and 14 of this Act. This resolution assumes companies have Article 34 (or equivalent wording) in their Articles of Association. 2023 Hudson Weir Limited, Weekdays: 9AM - 6PM The amended "dividend" is defined in section 1(1) of the ITA as: for the benefit of or on behalf of any person and in respect of any share in that company, by way of a distribution made by the company.30. 76 Mitchell supra n 75 at 5. 1980). Once you have subscribed to the Corporate Document Folder click on the Download Document button below. The word "amount" is used in the definition of "gross income" as defined in section 1 of the ITA and has been judicially considered in a number of cases and held to include not only money but the value of every form of property earned by the taxpayer, whether corporeal or incorporeal, which had a money value.31If the term "amount" is given a broad meaning incorporeal property such as rights would also be included. 92 Legal Information Institute (undated) Title 26 of the Internal Revenue code and federal regulations available at https://www.law.cornell.edu/uscode/text/26 (accessed 2018-06-30). Similarly, in ClR v People's Stores (Walvis Bay) (Pty) Ltd,33the court held that in order to be included in gross income, an amount must be of such a nature that a monetary value can be attached thereto. Given that the intention is for the parent to assume the liabilities of the business and asets to be distributed I have a number of queries as follows. An investigation into the purpose of the Seventh Schedule is conducted in order to understand the reason for the implementation of the schedule, as well as whether it could provide guidance on whether or not the intention of the legislator could be to include granting of services or the right of use of assets within the ambit of a dividend in specie. When cash isnt readily available, thats when a distribution in specie often comes into play. In 2008, company law in South Africa underwent a major transformation with the enactment of the new Companies Act,22 (the "Companies Act") which modernised company law in line with international and economic trends. Section 64FA (1) (b) of the Act provides a dividends tax exemption if the beneficial owner of a distribution of an asset in specie forms part of the same group of companies. 
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