22 February 2018 by

Welcome relief?

The recently introduced anti-dividend stripping rules applicable to shares held as trading stock or as capital assets are seen by many as overly broad and having unintended consequences.  

The amendments now result in exempt dividends being treated as additional proceeds, in the case that the shares are held as capital assets, or additional income in the event that the shares are held on revenue account, if certain conditions are met. This is especially the case in the context of simplifying or restructuring groups using corporate roll-over concessions. Should these simplifications or restructures results in the declaration of a dividend and combined with the termination of the company’s corporate existence, such dividends could be subject to additional capital gains tax or income tax. 

In addition to applying to legitimate restructurings, the anti-dividend stripping rules also find application in relation to the redemption of certain preference share structures. It is not uncommon for preference shares to contain gross-up clauses which may now be triggered pursuant to the redemption of these instruments.

It appears that the unintended consequences have been recognised by the Minister, and that the application of these rules will be clarified. 

download PDF

The information and material published on this website is provided for general purposes only and does not constitute legal advice.

We make every effort to ensure that the content is updated regularly and to offer the most current and accurate information. Please consult one of our lawyers on any specific legal problem or matter.

We accept no responsibility for any loss or damage, whether direct or consequential, which may arise from reliance on the information contained in these pages.

Please refer to the full terms and conditions on the website.

Copyright © 2020 Cliffe Dekker Hofmeyr. All rights reserved. For permission to reproduce an article or publication, please contact us cliffedekkerhofmeyr@cdhlegal.com