'SARS is going to be scrutinising your company's treatment of dividends. You can't afford to make a mistake when declaring the dividends, paying them out, or taxing them! If you make an error, you could be found guilty of tax evasion and face a 200% penalty,' warns the Practical Tax Loose Leaf Service.
To ensure you're always complaint, it's important to understand some of the basic features of dividends so you don't make mistakes in dealing with them.
Revealed: The three features of dividends in terms of the DT rules
#1: A company can get dividends from companies, but never from other Close Corporations (CC)
While both companies and CCs may be shareholders of other companies, they may not be members of other CCs. This is because CC membership is restricted to natural persons and trusts. This means a company or CC can receive dividends from companies, but never from other CCs.
#2: The company decides when it pays the dividend
Companies have no legal obligation to pay a dividend to its shareholders. The amount of the dividend and its payment date, depends on the profitability and liquidity of the company as well as the company's dividend policy.
While a dividend can be declared at any time by the shareholders in a general meeting, in practice this normally only happens once or twice a year (when the company calculates its profits).
#3: The shareholder registration date is the date the shareholder gets the dividends
An important date to remember is the 'last date to register' or the 'LDR date'. This is the date the company intends to pay the dividend. Physical payment usually takes place around 7 to 14 days after the LDR date.
For example, a company announces on 1 February 2012 that a dividend will be paid to all shareholders registered as such in the company share register as at close of business on 28 February 2012.
This means if you're a registered shareholder by 28 February 2012, you'll be entitled to receive the dividend.
In an event where a shareholder sells his shares in the company before the LDR date, or only buys shares in the company after that date, he won't be entitled to receive the dividend.
The LDR date is critical from a tax perspective since this is the date on which the shareholder becomes unconditionally entitled to the dividend. It's also the date on which the dividends are said to have accrued to him.
Understanding the basic features of dividends under the new DT rules will help you handle the treatment of dividends correctly and avoid penalties.