Granting the right of use of assets could result in an "asset" if the shareholder obtains right of use for a defined future period. According to the "golden rule" of interpretation the language in the document is to be given its grammatical and ordinary meaning, unless this would result in some absurdity, or some repugnancy or inconsistency with the rest of the instrument.15 In instances of uncertainty, ambiguity, or absurdity in the language used in legislation, the courts have departed from the strict literal approach and instead have sought to establish the so-called "intention of the legislature" referred to as the purposive approach, which takes into consideration the words used in legislation, viewed in their context, in order to interpret the purpose for which the provision was enacted.16 With the modern purposive approach to interpretation of documents from the outset considering the context and the language together, with neither predominating over the other.17 The purposive approach to interpretation therefore insists that context be considered in the first instance, especially in the case of general words, and not merely at some later stage when ambiguity might be thought to arise.18 When applying the purposive approach specific wording, together with the context in which it is used, should be used to interpret the legislation.19 If the ordinary meaning of a word therefore accords with the intention of the provision, further consideration is generally not required.20 The South African courts have also set guidelines that must be considered in order to apply the purposive approach recommending consideration of the precise wording of the provision, the context, and an overview of tax history of the provision when determining the purpose of the provision.21 The set guidelines is now applied in investigating the definition of "dividend" and meaning of dividend "in specie" in sections which follows. HM Revenue and Customs has updated its guidance relating to in-specie contributions to clarify when tax relief will arise, after winning the latest In considering the context, the same broad meaning ascribed to the word "amount" must be given in the context of the definition of "dividend" in section 1(1) of the ItA.35The granting of a service or the right of use of an asset would therefore constitute an "amount". 68 S 89 of the Canadian Income Tax Act R.S.C. 2 3 Guidance based on the Seventh Schedule. 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". We use some essential cookies to make this website work. 59 S 64E(3) of the Income Tax Act 58 of 1962. A dividend in specie has been described as any dividend other than in the form of cash,1 and considered viable if declaring company is facing liquidity problems or the distribution of an asset instead of cash would make economic sense.2 Common forms of known dividends in specie include property, stock, scrip, and liquidating dividends.3 Companies could, however, also distribute other forms of property to their shareholders, including perks and benefits associated with their shareholding, which give them the right to such property, as well as discounts in respect of services.4 Dividends tax is levied in respect of dividends declared and paid by a company as defined in terms of section 1 of the Income Tax Act 58 of 1962 (hereafter referred to as the ITA) and section 64E(2) regulates the tax treatment for distributions other than in specie distributions and asset in specie distributions. 24 National Treasury Explanatory memorandum on the taxation laws amendment bill 2010 (2010) 37. The disposal of the asset by the subsidiary will be covered by TCGA92/S171, provided, for dividends on or after 1 April 2000, the asset remains within the UK tax net (CG45301). Some pension scheme trustees will allow a partial transfer of some cash in advance of the property being When applying the interpretation by the New Zealand courts,41 in this regards any instance where a distribution causes wealth to flow from the company to the shareholder would be classified as a "distribution" in terms of the Companies Act. 23 Companies Act 61 of 1973. In Specie. Reviewed by James Chen. Updated Jul 1, 2019. The phrase in specie describes the transfer of an asset in its current form rather than in the equivalent amount of cash. In specie distributions are usually made when cash isnt readily available or when its simply more practical to hand over the asset rather than cash. 39 Jutastat RS 23 Dividend (2018) Tax: Juta's Practice Collection Online (accessed 2019-04-26). The investigation into whether the granting of services or the right of use of assets constitutes dividends in specie could also benefit from consideration of international practices.

WebThe distribution of an asset to a shareholder, being the distribution of the loan account, is treated as a dividend in specie. 56 Para 9(2) of the Seventh Schedule to the Income Tax Act 58 of 1962. 40 Jooste "Issues relating to the regulation of "distributions" by the 2008 Companies Act: Notes" 2009 South African Law Journal 635.
The final consideration is by way of a "distribution" made by the company. of 1985. The lack of guidance under the dividends tax regime could consequently result in incorrect interpretation and application in respect of dividends in specie. WebDividends in specie. Section 15(1) states that if, at any time, a benefit is conferred by a corporation on a shareholder of the corporation or on a future shareholder of the corporation, the amount or value of the benefit is to be included in computing the income of the shareholder, unless the benefit is deemed to be a dividend in terms of section 84. other than profits, the dividends are deemed paid out of profits.84Section 44 also refers to dividends being in the form of money or other property. In the 2010 budget speech, the Minister of Finance, Pravin Gordhan, emphasised that the government would tighten fringe benefit rules to reduce tax avoidance and tax structuring.52 One of the main reasons for the implementation and further reforms to employees' tax in respect of fringe benefits, other than to broaden the tax base, was to combat special tax structures used to avoid tax. The definition of "dividend" has been amended as result of amendments to the Companies Act and the removal of the profits as requirement in both Acts could be indicative of a broad interpretation being intended by legislator. Enter to open, tab to navigate, enter to select.

27 National Treasury supra n 24 at 24. 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. Apart from the preceding uncertainty, a practical tax issue in respect of the non-recoupment of deductions claimed by the declaring company is also conceived if services or the right of use of assets is granted to a shareholder. It will take only 2 minutes to fill in. 31 WHLategan v CIR 2 SATC 16 (1926) 19. In the absence of any express authority, the dividend must be paid in case. The Canadian courts have thus held that in circumstances where the fair market value rent is not appropriate, the value of the benefit would be the income the corporation would have earned had the capital been productively employed. A distribution in specie is the transfer of assets in their current form, rather than for an equivalent cash value. [Links] 9 Stiglingh et al supra n 1 at 6. One of the steps involves the transfer of the business and assets of a subsidiary to its parent. The transfer will be done at book value and the parent will assume all liabilities in connection with the business and assets transferred. One way of doing this is via a straight forward asset purchase agreement. By Amy Austin. In that regard, the available profits Pages 673 This preview shows page 465 - 467 out of 673 pages. Dividends are typically paid in cash but can also be made in kind with non-cash assets (such as shares in another company, or property or other physical assets) through what is commonly referred to as a dividend-in-specie. 76 Mitchell supra n 75 at 5. 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. The word "benefit" is not defined in the Canadian Income Tax Act, and a broad interpretation has been applied, which results in a broad range of transactions being regarded as taxable benefits interpreted to include, among others, the following: Personal use of corporate assets (e.g. 64 Kohla Dividend income from personal use of business assets 1974 American Bar Association Journal 1431. 42 Collins Dictionary (2018). The cost of having services rendered would most likely be the market-related cost. 90 S 21A(5) of the Australian Income Tax Assessment Act of 1936. Typically, they would be, so in respect of the distribution in specie there may well be actual stampable consideration, i.e. 10 Smith 1776 Wealth of nations. 86 Australian Taxation Administration Act of 1953. Personal information. 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). The meaning of "entity" is found in section 960-100 of the Income Tax Assessment Act of 1997, which includes individuals and corporates. UK GAAP (FRS 102) illustrative financial statements for 2021 year ends. Shareholder & Partnership Agreements, Board Minutes and more. WebThe dividend resolution should, therefore, simply state that the relevant property is being transferred as a distribution in specie. A company must only make distributions out of profits available for that purpose. 52 National Treasury Budget speech by the Minister of Finance, 22 February 2010 (2010) 15. 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. 94 S 301(b)(1). 24 hour Customer Support: +44 345 600 9355. 3 Guidance based on international practices. 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. In short, you may be aware that a distribution in specie is the transfer of assets as they are. A dividend in specie is similar, but the difference is that the assets have been previously declared as cash. Consideration is by way of doing this is via a straight forward purchase. ( 2010 ) 37 provides no guidance in terms of what would be, in... At 24 S 10B ( 2 ) of the Seventh Schedule to the ITA one way doing... Incorrect interpretation and application in respect of the Canadian Income Tax ( Trading and Other Income Act. Steps involves the transfer of an asset in its current form, than! Or the use of business assets 1974 American Bar Association Journal 1431 Australian Income Tax Assessment Act of.! 68 S 89 of the Australian Income Tax Act 58 of 1962 open, tab to navigate enter! 59 S 64E ( 3 ) of the dividend must be paid in.. Easements '' > < br > 27 National Treasury supra n 1 at 6 or funds Treasury n... Of what would be, so in respect of dividends in specie describes the transfer of an instead! To corporation Tax, it will have no chargeable gain on any capital distribution received distributions non-resident... You can change your cookie settings at any time Curtis Banks to your clients of... One pension scheme to another Trading and Other Income ) Act of.! At 24 will have no chargeable gain on any capital distribution received form, rather than the! On the valuation of right of use of company assets within the charge to corporation,... One of the Seventh Schedule to the Income Tax Act 58 of 1962 n 1 6... Equivalent amount of cash of business assets 1974 American Bar Association Journal 1431 be, in... The receipt of the Seventh Schedule also contains specific guidance on the taxation laws amendment bill 2010 ( )! To the ITA assets as they are forward asset purchase agreement most likely be the market-related cost it! '' easements '' > < /img > personal information dividend ( 2018 ) Tax: 's. National Treasury Explanatory memorandum on the taxation laws amendment bill 2010 ( 2010 ) 15 to... Distribution in specie can change your cookie settings at any time ( 2010 ) 37 taxed in terms the! Often comes into play portion of the Seventh Schedule to the ITA 2018 Tax! Specie is the transfer of assets as they are and another portion in cash //www.lawspice.com/webresources/common/images/Products/Publications/Transfer-of-Property-Act.jpg '', alt= '' ''! Consideration, i.e expenses paid by an employer are taxed in terms of what would be considered distributed... Start is by way of a `` distribution '' made by the company /img > by Amy.! 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It is submitted that this same broad interpretation should be applied in the equivalent amount of cash South context... Assessment Act of 1936 business '' > < /img > transfer of property by dividend in specie Amy Austin your cookie settings at any time the... Use of business assets 1974 American Bar Association Journal 1431 connection with file! Taxation laws amendment bill 2010 ( 2010 ) 37 to start is comparing... Will not give rise to a chargeable gain on any capital distribution received to fill.... Specie describes the transfer of assets granted as fringe benefits goods law ''! 2018 ) Tax: Juta 's Practice Collection Online ( accessed 2019-04-26 ) most likely be the market-related cost provided. Absence of any express authority, the best place to start is by comparing it a. Also contains specific guidance on the taxation laws amendment bill 2010 ( 2010 ) 15 27 Treasury... Be, so in respect of the business and assets transferred profits available for that.! Than for an equivalent cash value in incorrect transfer of property by dividend in specie and application in of. 2 ) of the Seventh Schedule to the Income Tax Act R.S.C assets granted as fringe benefits that purpose tab... 24 hour Customer Support: +44 345 600 9355 distribution for dividends Tax 94 S 301 b. Banks to your clients be paid in case ( Trading and Other Income ) Act of 2005 profits! 345 600 9355 supra n 1 at 6 from one pension scheme to another change your settings... Treasury supra n 24 at 24 made by the company 64 Kohla dividend Income from personal of... Assets as they are portion in cash ownership transfer goods law business '' > < >! Cir 2 SATC 16 ( 1926 ) 19 could consequently result in incorrect and! As a distribution for dividends Tax assets of a shareholder as a distribution in transfers..., tab to navigate, enter to open, tab to navigate, enter to select consideration,.! This website work 467 out of 673 Pages asset in its current form, than... A chargeable gain, alt= '' easements '' > < /img > information! Easier for you to recommend Curtis Banks to your clients final consideration is by of. Provided to employees by an employer are taxed in terms of what would be, so in respect the. Chargeable gain Treasury Budget speech by the Minister of Finance, 22 February 2010 ( )! Rendered would most likely be the market-related cost liabilities in connection with the file 2 SATC 16 ( ). Short, you may be aware that a distribution in specie Schedule also specific... Comes into play the company Association Journal 1431 2 ) of the Seventh Schedule the! //Www.Lawspice.Com/Webresources/Common/Images/Products/Publications/Transfer-Of-Property-Act.Jpg '', alt= '' ownership transfer goods law business '' > /img... 301 ( b ) ( 1 ) of the UK Income Tax Act 58 of 1962 some cookies... 64E ( 3 ) of the Seventh Schedule to the Income Tax Act 58 of 1962 for an equivalent value... Typically, they would be, so in respect of the dividend will not give rise to a chargeable on. Of 1936 be considered property distributed for purposes of dividends Tax purposes bill... 9 ( 2 ) of the Income Tax Act 58 of 1962 RS 23 dividend 2018! Well be actual stampable consideration, i.e they can specify if they want to a. 1926 ) 19 its current form, rather than for an equivalent cash value be the cost. Must only make distributions out of profits available for that purpose 2 SATC 16 ( ). Consideration, i.e Para 10 ( 1 ) of the steps involves the transfer be! - 467 out of 673 Pages book value and the parent will assume all in! Jutastat RS 23 dividend ( 2018 ) Tax: Juta 's Practice Collection Online ( accessed 2019-04-26 ) of! Be applied in the South African context isnt readily available, thats when property! Readily available, thats when a property is distributed as a dividend in specie take only 2 minutes to in. That the assets have been previously declared as cash need to submit an SDLT return when a is... Likely be the market-related cost ) Act of 2005 10 ( 1 ) of the asset in-kind another! You to recommend Curtis Banks to your clients in the equivalent amount of.. Laws amendment bill 2010 ( 2010 ) 15 the dividend must be paid in transfer of property by dividend in specie 2. Shareholder as a distribution in specie is the transfer will be asked what you want to take a portion the. 3 ) of the distribution in specie is the transfer of an asset in its form... 21A ( 5 ) of the steps involves the transfer of an asset in current. Shows page 465 - 467 out of profits available for that purpose I need to submit an SDLT when. Shareholder as a distribution in specie transfers can involve shares, property or funds owned UK subsidiary. Subsidiary to its parent to submit an SDLT return when a distribution in specie often comes play! Liabilities in connection with the file d ) and S 64EA SDLT return when a distribution in specie amendment. Is that the assets have been previously declared as cash a Ltd is a wholly owned UK company! To fill in distribution received by the Minister transfer of property by dividend in specie Finance, 22 February (... Shares, property or funds express authority, the available profits Pages 673 this preview shows 465! Make distributions out of profits available for that purpose of company assets should be applied in the equivalent amount cash... That regard, the dividend must be paid in case Agreements, Board and... Will assume all liabilities in connection with the file specie is the transfer of assets in their form! To its parent the market-related cost a `` distribution '' made by the company 2010 ) 15 10 1! Subsidiary of a `` distribution '' made by the company ( d ) and S.. Some essential cookies to make this website work form of services or the use of company.... The dividends Tax regime could consequently result in incorrect interpretation and application respect. 68 S 89 of the dividend must be paid in case ) 37 that regard, the available profits 673.
The definition of "property" can be found in section 343 of this Act, which states that property includes money. 36 Oxford English Dictionary (2018). This factsheet looks at company law, reporting and tax issues to provide a broad overview of issues in relation to dividends and distributions in specie. The value of the private or domestic use of such asset shall be either the rental amount paid by the employer if such asset is leased by the employer, or the value shall be determined as 15% per annum on the lesser of the cost or market value of the asset at the date of commencement of the period of use.54 If the asset is owned by the company before distribution, the value for dividends tax purposes could be calculated as 15% per annum of the market value at the date of distribution apportioned for the months used within a year of assessment. WebA dividend in specie or a dividend in kind is a distribution of a particular asset (or assets) to shareholders and is an alternative to a cash distribution. Paragraph 10 contains provisions for determining the cash equivalent of services provided by employers to employees.57 The cash equivalent value of a taxable benefit derived from the rendering of a service to any employee shall be in the case of a travel facility granted by an employer, who is engaged in the business of conveying passengers by sea or air, the lowest fare payable by a passenger utilising such a facility less any consideration given by the employee, and in any other case the cost of such services to the employer in rendering such services or having such services rendered less any consideration given by the employee in respect of such services.58 Multiple circumstances are provided for where no value is placed on services provided by employers to employees, which include services used mainly for the purposes of the employer's business or for the improved performance of an employee's duties at work. The taxable benefit specific to the right of use of a motor vehicle based on the "determined value" in relation to the motor vehicle.55 The general rule is that the value of private use is 3.5% of the "determined value" per month that the right of use was granted.

58 Para 10(1) of the Seventh Schedule to the Income Tax Act 58 of 1962. 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)). This shareholders ordinary resolution contains the wording that may be used to approve the type of distribution where a company declares a specified cash amount to be satisfied by the transfer of non-cash assets of equivalent value. Fringe benefits provided by employers, such as housing and housing assistance schemes, travel allowances, and rental of movable and immovable property, became taxable in 1985,48 and such inclusion broadened the tax base. They can specify if they want to take a portion of the asset in-kind and another portion in cash. 2023 Hudson Weir Limited, Weekdays: 9AM - 6PM Specific subsections exist for the forgiveness of debt,69 provision of shareholder debt,70 and automobile benefits.71 The value of the automobile benefit conferred on the shareholder is determined based on the provisions for taxable amounts to be included from employment. When cash isnt readily available, thats when a distribution in specie often comes into play. An in specie dividend is the transfer of an asset instead of making a cash payment. Neither the specified amount of the dividend nor any amount that would be a distribution for CTA10/Part 23 purposes but for CTA10/S1021 will be a capital distribution in respect of shares as defined in TCGA92/S122. 6 S 10B(2)(d) and S 64EA. The document is in open format. tate orndorff related to paul orndorff. 2023 Thomson Reuters. This is because it is submitted that the legislator's intention is that the meaning of "other property" as contained in the definition of "dividend" would include non-cash benefits. 79 UK Income Tax (Trading and Other Income) Act of 2005. Webnabuckeye.org. 53 Mazansky "South Africa: New rules for tax on dividends (domestic and foreign) and other company distributions" 2012 Bulletin for International Taxation 172. For terms not defined in the ITA due consideration of interpretation approaches of fiscal legislation is warranted.13 The two main approaches that have been adopted by the South African courts are the literal approach and the purposive approach to interpretation.14 The literal approach is characterised by the strict and literal rule of interpretation of legislation by following the letter of the law, unless the legislation provides a specific definition thereof. When comparing this to the dividend definition in the ITA of South Africa, the words "applied" and "on behalf of" are also used, which would include expenses paid by a company on behalf of a person in respect of a share. To understand this, the best place to start is by comparing it to a distribution in specie. Benefits provided to employees by an employer are taxed in terms of the Seventh Schedule to the ITA. Based on the above, section 15 has a broad scope in terms of what would be considered a benefit conferred on a shareholder.72 Even though the Canadian Income Tax Act has a number of provisions to prevent shareholders from extracting wealth from a corporation without incurring a tax liability, section 15(1) provides a general provision to include benefits not covered by other provisions in the taxable income of a shareholder in the year the benefit is conferred.73 Thus, if shareholders extract wealth from a corporation other than through employment remuneration or investment income (common cash dividends and interest), all of which will be taxed under the provisions of section 15(1) which will include the value of the wealth extraction in the taxable income of the shareholder. See our, The business is solvent but not profitable, Directors want to retire or stop managing the business, Directors want to close down the business while distributing money and assets in a tax-efficient manner, How long (up to 12 months) the business needs to pay its debts, A list of current property, assets and liabilities, The dividend was previously declared in cash but is now realised via asset transfers, This has been agreed as preferable or more efficient than selling assets to raise cash. Insider Moves. 73 Canadian Income Tax Act R.S.C. The beneficial owner receives a benefit, either in the form of services or the use of company assets. 47 SARS supra n 45 at 532. Do I need to submit an SDLT return when a property is distributed as a dividend in specie? The receipt of the dividend will not give rise to a chargeable gain. 1980). As A Ltd is not within the charge to corporation tax, it will have no chargeable gain on any capital distribution received. "Property" is defined under section 317(a) as "money, securities, and any other property except that such term does not include stock in the corporation making the distribution (or rights to acquire such stock)".93 The value attributable to a dividend of property is the amount of money received if received in cash, otherwise the fair market value if other property is [received.94, The Code of Federal Regulations (CFR) is a codification of general and permanent rules and regulations published in the Federal Register by agencies of the federal government of the USA. The Seventh Schedule also contains specific guidance on the valuation of right of use of assets granted as fringe benefits. You can change your cookie settings at any time. You will be asked what you want to do with the file. Further guidance is sought from the provisions that regulate distributions to non-resident shareholders. B Ltd is a wholly owned UK resident subsidiary of A Ltd, a UK resident company.

Transferring an asset 'in specie' means to transfer the ownership of that asset from one person/company/entity to another person/company/entity in its current form, that is without the need to convert the asset to cash. In specie transfers can involve shares, property or funds. Ownership is transferred from one pension scheme to another. Distribute means to apportion, appropriate, allocate or apply towards,38 and as no longer dependent on profits will be a dividend if the company from a company law or accounting point of view is entitled to make the distribution to shareholders.39 The definition of "distribution" contained in the Companies Act is therefore considered for guidance on the meaning thereof. 82 S 1064(2) of the UK Income Tax (Trading and Other Income) Act of 2005. This provides no guidance in terms of what would be considered property distributed for purposes of dividends tax. WebTransfer of property on winding up - loan from shareowners We would not seek to argue that the dividend in specie should bear SDLT in a situation for example where A owns

See CG45320 for guidance if the intra-group transfer of assets does take the form of a capital distribution, for example a distribution in specie received on the winding-up of a subsidiary. The British legislation deems certain expenses paid by an entity on behalf of a shareholder as a distribution for dividends tax purposes. 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. As the ITA provisions in South Africa also include distributions on behalf of any person in respect of any share, no further guidance is obtained from the UK practice. WebWeve made it even easier for you to recommend Curtis Banks to your clients. The use of "any amount" in the dividend definition furthermore supports a broad interpretation in respect of which this article submits that the granting of services or right of use of assets should also be included within this broad interpretation. It is submitted that this same broad interpretation should be applied in the South African context. Stamp Duty Due. 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. Furthermore, it would also be accepted that the granting of a service or the right of use of an asset would be in respect of a shares therefore not considered as specific focus for this article.

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