Dividends tax: The importance of determining when a dividend is “due and payable”
In terms of section 64EA(a) of the Act, the beneficial owner of a cash dividend is liable for dividends tax in respect of that dividend. However, in terms of section 64F(1), a cash dividend is exempt from dividends tax in various instances. Despite these exemptions, section 64G(1) provides that, subject to section 64G(2) and (3), a company that declares and pays a cash dividend must withhold dividends tax from that payment.
Section 64G(2)(a) provides that a company must not withhold any dividends tax from the payment of a dividend if the person to whom payment is made has (1) by a date determined by the company or (2) if no date has been determined by the company, by the date of payment, submitted to the company:
The “group of companies” exemption from withholding in terms of section 64G(2)(b) of the Act is not discussed for purposes of this article. The discussion below relates to dividends declared by unlisted companies to beneficial owners who/which do not form part of the same group of companies.
Our courts have considered the meaning of “due” and “payable” on a number of occasions. In Rhodesia Newspapers Company Ltd v Allison, the court stated the following as regards the meaning of “due”:
These statements echo the meaning given to “due” in the Oxford Online Dictionary, where it is stated as denoting, inter alia, “(of a thing) required or owed as a legal or moral obligation”.
The draft Comprehensive Guide to Dividends Tax (Issue 2) issued by the South African Revenue Service (the “Guide”), released for comment on 27 July 2017, states the following on page 58 as regards the meaning of “due and payable” in section 64E(2)(a)(ii):
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