43A. Dividends treated as proceeds on disposal of certain shares
(1) For the purposes of this paragraph-
[Words preceding the definition of “exempt dividend” substituted by section 80 of Act 23 of 2018 effective on 17 January 2019]
Category: Paragraph 43A (Eighth Schedule) – Dividends treated as proceeds on disposal of certain shares
Paragraph 43A
- Words preceding subitem (2)(c)(i) substituted by section 118 of Act 22 of 2012 effective on 1 January 2013.
- Subparagraph (2) substituted by section 118 of Act 22 of 2012 effective on 1 April 2012.
- Subparagraph (3) substituted by section 118(1)(a) of Act 22 of 2012 effective on 1 April 2012 and section 118(1)(c) of Act 22 of 2012 effective on 1 January 2013.
- Paragraph 43A inserted by section 112 of Act 24 of 2011 effective on 1 April 2012.
“Deferral transaction” definition of paragraph 43A of Eighth Schedule
‘deferral transaction’ means a transaction in respect of which the provisions of PART III of Chapter II were applied;
[Definition of “deferral transaction” inserted by section 80 of Act 23 of 2018 effective on 1 January 2019, applies in respect of disposals on or after that date]
“Exempt dividend” definition of paragraph 43A of Eighth Schedule
‘exempt dividend’ means any dividend or foreign dividend to the extent that the dividend or foreign dividend is-
(a) not subject to tax under Part VIII of Chapter II; and
(b) exempt from normal tax in terms of section 10(1)(k)(i) or section 10B(2)(a) or (b);
“Extraordinary dividend” definition of paragraph 43A of Eighth Schedule
‘extraordinary dividend’, in relation to-
(a) a preference share, means so much of the amount of any dividend received or accrued in respect of that share as exceeds the amount that would have accrued in respect of that share had it been determined with reference to the consideration for which that share was issued by applying an interest rate of 15 per cent per annum for the period in respect of which that dividend was received or accrued;
[Paragraph (a) substituted by section 80(1)(c) of Act 23 of 2018 and by section 62(1)(a) of Act 34 of 2019]
(b) any other share, means so much of the amount of any dividend received or accrued-
(i) within a period of 18 months prior to the disposal of that share; or
(ii) in respect, by reason or in consequence of that disposal,
as exceeds 15 per cent of the higher of the market value of that share as at the beginning of the period of 18 months and as at the date of disposal of that share:
Provided that a dividend in specie that was distributed in terms of a deferral transaction must not be taken into account to the extent to which that distribution was made in terms of an unbundling transaction as defined in section 46(1)(a) or a liquidation distribution as defined in section 47(1)(a);
[Definition of “extraordinary dividend” amended by section 62(1)(b) of Act 34 of 2019 deemed effective on 30 October, 2019 and applicable in respect of dividends received or accrued on or after that date and by section 62(1)(c) of Act 34 of 2019]
“Preference share” definition of section 43A of Eighth Schedule
‘preference share’ means a preference share as defined in section 8EA(1); and
[Definition of ‘preference share’ inserted by section 80 of Act 23 of 2018 effective on 19 July 2017, applies in respect of disposals on or after that date]
“Qualifying interest” definition of paragraph 43A of Eighth Schedule
‘qualifying interest’ means an interest held by a company in another company, whether alone or together with any connected persons in relation to that company, that constitutes-
(a) if that other company is not a listed company, at least-
(i) 50 per cent of the equity shares or voting rights in that other company; or
(ii) 20 per cent of the equity shares or voting rights in that other company if no other person (whether alone or together with any connected person in relation to that person) holds the majority of the equity shares or voting rights in that other company; or
(b) if that other company is a listed company, at least 10 per cent of the equity shares or voting rights in that other company.
Subparagraph 2 of paragraph 43A of Eighth Schedule
(2) Subject to subparagraph (3), where a company holds shares in another company and disposes of any of those shares in terms of a transaction that is not a deferral transaction and that company held a qualifying interest in that other company at any time during the period of 18 months prior to that disposal, the amount of any exempt dividend received by or that accrued to that company in respect of the shares disposed of must-
(a) to the extent that the exempt dividend constitutes an extraordinary dividend; and
(b) if that company immediately before that disposal held the shares disposed of as a capital asset (as defined in section 41),
be taken into account as part of the proceeds from the disposal of those shares or, if those shares are treated as having been disposed of in terms of subparagraph (4), as a capital gain in respect of those shares, in the year of assessment in which those shares are disposed of or are treated as having been disposed of or, where that dividend is received or accrues after that year of assessment, the year of assessment in which that dividend is received or accrues: Provided that where a company disposes of shares that are treated as having been disposed of previously by that company in terms of subparagraph (4), the amount of any extraordinary dividend in respect of those shares must be included in the proceeds from that disposal only to the extent to which it has not previously been taken into account in respect of those shares in terms of this subparagraph .
[Subparagraph (2) amended by section 80(1)(e) of Act 23 of 2018 and substituted by section 62(1)(d) of Act 34 of 2019 deemed effective on 20 February, 2019 and applicable in respect of shares held by a company in a target company if the effective interest held by that company in the shares of that target company is reduced on or after that date]
(3) Where a company holds shares in another company and disposes of any of those shares in terms of a transaction that is not a deferral transaction within a period of 18 months after having acquired those shares in terms of a deferral transaction, other than an unbundling transaction and—
(a) within a period of 18 months prior to the disposal of those shares by that company an exempt dividend in respect of those shares accrued to or was received by a person that-
(i) disposed of those shares in terms of a deferral transaction; and
(ii) was a connected person in relation to that company at any time within that period or immediately after that disposal,
that dividend must for purposes of this paragraph be treated as a dividend that accrued to or was received by that company in respect of those shares within the period during which that company held those shares; and
(b) if that company acquired those shares (hereinafter referred to as ‘new shares’) in terms of that deferral transaction in return for or by virtue of the holding, by that company, of other shares (hereinafter referred to as ‘old shares) that were disposed of in terms of that deferral transaction and an exempt dividend in respect of the old shares, other than a dividend consisting of new shares, accrued to or was received by that company within a period of 18 months prior to the disposal of the new shares, that dividend must for purposes of this paragraph be treated as an amount that accrued to or was received by that company as an exempt dividend in respect of the new shares.
[Subparagraph (3) added by section 80(1)(f) of Act 23 of 2018 and amended by section 62(1)(e) of Act 34 of 2019]
(4) Where a company holds equity shares in another company (hereinafter referred to as the “target company”) and-
(a) the target company issues shares (hereinafter referred to as the “new shares”) to a person other than that company; and
(b) the effective interest of that company in the equity shares of the target company is reduced by reason of the new shares issued by the target company,
that company must for purposes of this paragraph be treated as having disposed, immediately after the new shares were issued, of a percentage of those equity shares that is equal to the percentage by which the effective interest of that company in the equity shares of the target company has been reduced by reason of the new shares issued by the target company: Provided that any new shares that are convertible to equity shares must for purposes of this subparagraph be treated as equity shares.
[Subparagraph (4) added by section 62(1)(f) of Act 34 of 2019 deemed effective on 20 February, 2019 and applicable in respect of shares held by a company in a target company if the effective interest held by that company in the shares of that target company is reduced on or after that date]
[Paragraph 43A inserted by section 112 of Act 24 of 2011, amended by section 118 of Act 22 of 2012 and substituted by section 72 of Act 17 of 2017 effective on 19 July 2017, applies in respect of any disposal on or after that date other than a disposal in terms of an agreement all the terms of which were finally agreed to before that date by all the parties to that agreement]