When is stc payable

Where the amount is remuneration in the hands of the recipient or represents repayment of a debt owing by the company to the recipient. Note that any distribution restrictions contained in the memorandum and articles are ignored.

Where a loan to a recipient who is an employee of the company under the usual terms of a loan scheme generally available to employees who are not shareholders. Where a loan is made by one company to another for use by the latter in South Africa and the one company is a wholly owned subsidiary of the other or both companies are owned by exactly the same person or persons. Where the amount derives from the capital profits of a company which commences liquidation or winding up proceedings within 6 months after the distribution or such further reasonable period as the Commissioner may allow.

It should be noted that to avoid STC, capital profits should only be distributed during the course of liquidation or winding up of a company. If the capital profits are distributed as a dividend prior to liquidation, then they will be included as dividends as defined and as a result will not be exempt in terms of Section 64 C which, as currently worded would appear to apply to loans and not actual dividends.

Clarity is being requested from Inland Revenue. Where a loan to a shareholder but not one to a relative or trust which is a "recipient" see above has been deemed to be a dividend and is subsequently wholly or partly repaid, the amount thus received is deemed to be dividend accruing to the company and can thus be deducted from any dividend declared in that dividend cycle.

As stated above, STC must be paid by the end of the month following the month in which the relevant dividend accrues to shareholders or, in the case of a deemed dividend, to the recipient. A meaningful cash flow advantage can be gained by ensuring that dividends accrue to shareholders registered at the beginning of a month rather than at the end of the previous month. It may be of value to specify in a formal dividend resolution that the dividend is being distributed out of current profits of a revenue nature.

This will ensure that, to the extent possible, retained earnings consist mostly of revenue profits derived in a tax year ended no later than 31 March , and a distribution of such reserves on eventual liquidation would be exempt from STC as will capital profits whenever earned.

This relief will be difficult to use in practice except where a proper record is kept of the original agreement between the company and the shareholder specifying the terms of the loan or credit. Without such clear-cut evidence, Inland Revenue might try to raise an assessment for an STC liability without waiting to find out whether repayment takes place within the required period. Where a loan is made by a wholly-owned subsidiary to its holding company or to another wholly-owned subsidiary of the same holding company no deemed dividend will arise for STC purposes if the borrower utilises the loan in South Africa.

It should be stressed that relief under this section cannot be obtained if even a small number of shares are held otherwise than directly by the holding company e. By employees in an employee share purchase trust. IT Act S 64B. Report bugs here. Please share your general feedback. You can join in the discussion by joining the community or logging in here.

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