Bill reverses change to company tax law  

A SURPRISE and almost-invisible clause in the Revenue Laws Amendment Bill reverses one of the key amendments made last year to secondary tax on companies (STC) charged on dividends declared in the course of the liquidation of a company.

Jackie Arendse, Wits University tax associate professor, said at the weekend that the STC exemption for distributions of capital profits prior to October 1 2001, and the exemption for revenue profits prior to March 1 1993 in the course of a company’s liquidation, were removed in the Revenue Laws Amendment Act of 2007. “This removal is effective from January 1 next year,” Arendse said. The amendment to the income tax laws was widely publicised and drove many companies to declare liquidation dividends before the end of this year, she said.

However, a further recent amendment to the income tax legislation repeals the 2007 bill, with effect from January 1 next year. “This means that, for the time being, the STC treatment of liquidation dividends goes back to its original form,” Arendse said. Any portion of a liquidation dividend that consists of profits derived during any year of assessment which ended not later than March 31 1993; capital profits relating to the period prior to October 1 2001; and profits derived before the company became a (South African) resident, would be exempt from STC.

“It is likely that this STC exemption will continue until the new withholding tax on dividends is implemented, which is expected to be mid- to late 2009.” New changes to the STC regime were announced last month by the government. Johan Troskie, a director at Deneys Reitz Tax, said that SA’s tax system had moved away from a company tax to an effective tax on shareholders payable on the distribution of dividends by a company. As with STC, the dividend tax would remain at 10%.

Last year, Finance Minister Trevor Manuel announced a two-phased approach to the reform of STC. The first involved the reduction of the STC rate. The second phase of the STC reform entailed the replacement of the tax with a new levy on distributions of companies.

Under the new system, dividend tax would be payable on the payment of any dividend declared by a company.

Sanchia Temkin, www.businessday.co.za, 8 December 2008