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Potential dividend deductions by banks or other covered persons

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Potential dividend deductions by banks or other covered persons

Currently banks or other covered persons must, subject to certain exclusions, include in or deduct from their Statement of Comprehensive Income all amounts from qualifying financial assets and financial liabilities that are recognised as profits or losses.

27 Feb 2020 1 min read Special Budget Speech Alert Article

However, currently this deeming provision does not apply to a financial asset that is a share or a dividend received by or accrued to a bank or a covered person.

Investors have been offered the opportunity to subscribe for shares in a special purpose vehicle that is introduced between the investor and a covered person. In other words, this entity will issue shares to an investor and pay dividends to the investor. These dividends will be exempt. However, it will receive interest or other income in respect of the financial assets which would be deductible. Higher returns can therefore be paid to the investor.

It has now been proposed that the exclusion pertaining to dividends will no longer apply. In other words, the question is whether these dividends will in future become taxable. This could have a substantial effect on the ultimate return to the investor.

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