The New Dividends Tax: Read All About It (And A Warning!)
From 1 April, STC (Secondary Tax on Companies) will be replaced by DT (Dividends Tax – which, just to confuse the issue, some commentators are calling “DWT” for “Dividend Withholding Tax”).
- The rate – 10% – stays as is. But whereas STC is payable by a company when it declares a dividend, DT is payable by the shareholder receiving it. The company must withhold the tax, deduct it from the dividend, and pay it over to SARS on behalf of the shareholder.
- Reduced rates and exemptions – under STC, exemptions were based on the status of the declaring company. Under DT, exemptions and reduced rates are based on the status of recipients. Thus various levels of exemption apply to dividend recipients who are (for example – this isn’t a comprehensive list) local companies, approved Public Benefit Organisations, pension and similar funds, medical aids, and registered micro businesses (up to R200,000 p.a.), whilst some foreign shareholders will enjoy reduced rates. Warning: to secure your exemption you must notify the company paying out the dividend (in the prescribed format) before the dividend is paid.
Note: The above is of necessity just a brief overview. Take proper and specific advice on how the changes will affect you!
Sales Brochures – Empty Promises And The Law
You buy into a Private Game Reserve scheme, looking forward to all the good things promised in the sales brochure – like viewing abundant game from your own personal safari vehicle before retiring to the communal clubhouse/wellness centre for a dip in the heated swimming pool and a workout in the gym.
But alas, three years down the line you still have no game drive vehicle and no wellness centre, and the amount of game has drastically decreased because the developer has been selling off game without consent from the body corporate. What can you do?
Firstly, if the Consumer Protection Act (“CPA”) applies to your case – and it’s likely to where the seller is a developer – your position’s probably strong. The CPA’s requirements of “fair and honest dealing” and “fair and responsible” marketing (prohibiting “exaggeration, innuendo or ambiguity” and anything “misleading, fraudulent or deceptive in any way”) make it essential for property sellers (and their agents) to ensure deliverability of all promises made in sales materials and negotiations.
The Court Case
Even if the CPA doesn’t apply, a recent High Court case – in which the facts were more or less as set out above – illustrates the need for sellers to tread with care when preparing or approving sales brochures.
The Court in this case held that, although the agreement of sale itself imposed obligations on the developer only in regard to the vehicle and game numbers, and although it said nothing of the clubhouse/wellness centre, the undertaking in the sales brochure to provide such a centre was enforceable. The Court’s finding -based partially on the wording of the brochure – was that the “common intention” of the parties was for the centre to be provided. The Court accordingly ordered rectification of the contract by importation of a clause to that effect.
Developers – Make Sure You Get Your VAT Relief
A major concession from SARS
Residential property developers – if you are stuck with empty houses because of the property slump you can now rent them out without triggering a deemed “change in use”. That’s a major concession, as such a change in use would make you liable to pay output VAT on the “deemed supply” of the property (based on its market value) – and that could mean a hefty drain on your cash flow at a very hard time in the property cycle.
You will lose this benefit –
- If you don’t notify SARS in specified format within 30 days of commencing the rental supply, or
- If your intention does in fact change from selling the development to holding it for rental, or
- After 36 months – you will have to pay the tax then if your leases are for longer than 3 years.
Note also that the concession is temporary and ends on 1 January 2015.