B Ltd owns an asset X book value 100,000 market value 1M. Notifiable land transactions are set out in FA 2003, s 77. 65 National Treasury Dividends versus return of capital: Revising the base for taxable distributions (2008) 12-13. 
All rights reserved. You might know what a distribution in specie is, but what is a dividend in specie? They can specify if they want to take a portion of the asset in-kind and another portion in cash. The granting of services or the right of use of assets to shareholders as a dividend in specie could potentially not be taxed unless they fall within the ambit of the definition of a dividend as contained in section 1(1) of the ITA. This could indicate that from a South African perspective, guidance can be obtained for the value to be attributed for tax purposes to the granting of services or the right of use of assets from the Seventh Schedule. Paragraph 10 contains provisions for determining the cash equivalent of services provided by employers to employees.57 The cash equivalent value of a taxable benefit derived from the rendering of a service to any employee shall be in the case of a travel facility granted by an employer, who is engaged in the business of conveying passengers by sea or air, the lowest fare payable by a passenger utilising such a facility less any consideration given by the employee, and in any other case the cost of such services to the employer in rendering such services or having such services rendered less any consideration given by the employee in respect of such services.58 Multiple circumstances are provided for where no value is placed on services provided by employers to employees, which include services used mainly for the purposes of the employer's business or for the improved performance of an employee's duties at work. A distribution in specie is the transfer of assets in their current form, rather than for an equivalent cash value. Furthermore, the Seventh Schedule also contains specific guidance on the valuation of services granted as fringe benefits. The amount is also not deductible by the corporation.78 Section 15(1) will not apply to transactions or if the benefit arose due to employment and not due to shareholding.bona fide business. WebThe dividend resolution should, therefore, simply state that the relevant property is being transferred as a distribution in specie. 40 Jooste "Issues relating to the regulation of "distributions" by the 2008 Companies Act: Notes" 2009 South African Law Journal 635. 102 C:SARS v NWK Ltd (2011) 73 SATC 55. 
In-specie transfers into your superannuation fund involve the transfer of an asset into your fund without it first being liquidated into cash. 83 S 44(1) of the Australian Income Tax Assessment Act of 1936. Further guidance on the meaning of non-cash benefits is obtained from the provisions that regulate non-cash business benefits, which are found in section 21A of the Income Tax Assessment Act of 1936. UBS had received the BMedia shares from Berjaya Corp Bhd as dividend-in-specie. WebTransfer of shares as dividend/distribution The key matter to consider is that the decision to transfer the asset creates a debt of the company to shareholders. There is no requirement for cash dividends to be declared by shareholders at a general meeting. 
This article concludes that the granting of services or the right of use of assets would constitute dividends in specie and that the specific guidance on the valuation of such benefits in terms of the Seventh Schedule to the Income Tax Act, could possibly be extended to the application in the context of dividends tax. 
Australian taxation legislation is contained in different acts. member. A broad interpretation is applied to the word "benefit" in the Canadian Income Tax Act and academics have interpreted "benefit" to include the personal use of corporate assets. I assume that there will need to be an agreement between parent and subsidiary along the lines of an asset purchase agreement to deal with the mechanics of the transfer. Such dividends will usually be declared in a given amount, to be satisfied by the transfer of assets. As shareholders could opt for the granting of services or the right of use of assets if not classified as a dividend, these methods could be applied to avoid dividends taxes and could also result in a non-recoupment of deductions claimed by the declaring company. 10 Smith 1776 Wealth of nations. 55 Para 7(1) of the Seventh Schedule to the Income Tax Act 58 of 1962. However, if a service or the right of use of an asset is granted as a dividend in specie, the declaring company could still claim deductions without any recoupment in terms of section 8(4)(k) or section 8(4)(a) on subsequent granting to the shareholder if no asset was distributed or amounts recouped. Webochsner obgyn residents // transfer of property by dividend in specie. Dividends in specie, the granting of services or the right of use of assets, IBAcc (Hons), MAcc Taxation, Chartered Accountant (SA), Manager, PwC IIBCom Accounting (Hons), MCom Taxation, Chartered Accountant (SA), Senior lecturer, School of Accountancy, Stellenbosch University. 26 National Treasury supra n 24 at 37-38. It is generally used to move ownership from one entity into a super fund, more commonly, Self-Managed Super Funds. 
WebPayment of costs for the in-specie transfer of the property / land between pension schemes. This objective stems from a lack of specific guidance in respect of dividends in specie and the practical tax issue in respect of non-recoupment of deductions if a service or right of use is granted as dividends in specie. Section 15(1) states that if, at any time, a benefit is conferred by a corporation on a shareholder of the corporation or on a future shareholder of the corporation, the amount or value of the benefit is to be included in computing the income of the shareholder, unless the benefit is deemed to be a dividend in terms of section 84. In cases where the fair market value rent is not appropriate or cannot be determined, the value of the benefit is the income the corporation would have earned had the capital been productively employed. Key facts. With a change in wording generally reflecting a change in intention,29 the amended "dividend" definition could be indicative of a broad interpretation being intended by the legislator. 70 S 15(2) of the Canadian Income Tax Act R.S.C. The use of "any amount" in the dividend definition furthermore supports a broad interpretation in respect of which this article submits that the granting of services or right of use of assets should also be included within this broad interpretation. 18 K & S Lake City Freighters Pty Ltd v Gordon & Gotch Ltd (1985) 315. The broadening of the tax base could be a useful tool for redistribution to the poorest by taxing the rich and a broad base also encourages lower tax rates which in turn will reduce tax evasion.49These benefits were also often partially exempt from tax in order to compensate for the high marginal rate of tax during the period of the Margo Commission. The transfer will be done at book value and the parent will assume all liabilities in connection with the business and assets transferred. Services are further defined in the Income Tax Assessment Act of 1936 as "any benefit, right (including the right in relation to, and an interest in, real or personal property), privilege or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided" in respect of a business relationship.90 The meaning of a "non-cash benefit" in the provisions for dividends tax is ascribed to the term "other property" due to the reference to non-cash benefits in the administration of the withholding tax on dividends. 19 De Koker & Williams supra n 14 at para 25.1D. The Seventh Schedule also provides specific guidance on valuing services, the right of use of motor vehicles, residential property, and other assets granted as benefits from a South African perspective. 41 Re DML Resources Ltd (In Liquidation) (2004) 3 NZLR 490 (HC) at 505. General rates are 0.601.35%, 0.32-0.75% on regular housing and 0.50-1.00% on leisure properties. The final consideration is by way of a "distribution" made by the company. So how is a distribution in specie any different to the topic were covering in this article, what is a dividend in specie? 14 De Koker & Williams Silke on South African income tax (2017) para 25.1A-25.1D available at http://www.mylexisnexis.co.za (accessed 2018-02-28). If the dividend is declared in an amount equal to the market value of the asset, then that is the measure of the dividend. The beneficial owner receives a benefit, either in the form of services or the use of company assets. The transfer of the asset may be effected by the subsidiary company declaring a dividend in kind also known as a dividend in specie. Dividends in specie are not defined by the Income Tax Act, which could result in uncertainty whether the granting of services or the right of use of assets to shareholders would be included in the ambit thereof. This article investigated whether the granting of services or the right of use of assets to shareholders would constitute dividends in specie for purposes of the Income Tax Act by considering the South African perspective as well as guidance based on international practices. From Latin it translates to in its actual form and is often used interchangeably in law with in kind. It usually involves the transfer of an asset such as property, an investment or equipment. Webconstitute dividends in specie and that the specific guidance on the valuation of such benefits in terms of the Seventh Schedule to the Income Tax Act, could possibly be extended to the application in the context of dividends tax. Nature of existing . 78 Hennessey "Another reason to avoid shareholder benefits" 2016 CTF 1 available at https://www.ctf.ca/ctfweb/EN/Newsletters/Canadian_Tax_Focus/2016/1/160103.aspx (accessed 2018-04-30). 2023 Hudson Weir Limited, Weekdays: 9AM - 6PM An alternative to a distribution of cash dividend is a distribution of a particular asset (or assets) to shareholders. WebThis transfer is called a dividend in kind or a dividend in specie. 6 S 10B(2)(d) and S 64EA. It is submitted that this same broad interpretation should be applied in the South African context. Your practice note on demergers also suggests that the transfer could potentially be achieved by a direct dividend, ie subsidiary declares a dividend in specie of the business and assets. Personal information. Considering the context of "dividend" as defined based on an overview of tax history of the provision also does not contradict the broad meaning submitted in terms of the wording and context. Insider Moves. However a company must have the relevant authority to pay a dividend in specie. A distribution in specie is the transfer of assets in their current form, rather than for an equivalent cash value. The Canadian courts have thus held that in circumstances where the fair market value rent is not appropriate, the value of the benefit would be the income the corporation would have earned had the capital been productively employed. WebTechnical factsheet: dividend in specie and distribution in specie in private companies Often the question is asked about how you determine that a dividend is declared or WebSIPP Property & Land Questionnaire for In-Specie Transfer 1. In specie contributions involve the transfer of assets from an individual or company to a pension scheme. This will be the case when, for example, an asset is built specifically for the shareholder, as not merely the right to use the asset is conferred but also the right to use an asset built specifically for the shareholder. Can a dividend in specie be a transaction at an undervalue or a fraud on creditors under the Insolvency Act? 1946). The Australian legislation deems non-cash benefits (a right, benefit, privilege, service, or facility) received by a shareholder to be treated the same as if it were received in cash. Based on the above the definition of "dividend" does not contradict the interpretation that the intention of the legislator is to include other benefits within the ambit of the definition of "dividend" and is consistent with the modern purposive approach to interpret legislation. 67 S 82(1) of the Canadian Income Tax Act R.S.C. If you transfer a freehold title in a property by way of a dividend in specie, does the transfer/distribution attract VAT? To access this resource, sign up for a free trial of Practical Law. 98 Para 75 of the Eighth Schedule 99 S 10B(2)(d) and Section 64EA 100 Kohla supra n 57 at 1431. 1980). For more information about a MVL or dividend in specie settlement, please contact us. This is a Members Voluntary Liquidation (MVL) and there are several reasons why solvent businesses might consider one: Directors first need to draw up a declaration of solvency, stating their belief that the business can pay back any debts and interest within a year. 35 SARS supra n 7 at 24. In the context of dividends tax, this article posits that the granting of services or the right of use of assets in respect of shareholding could also be employed to avoid dividends tax implications if uncertainty regarding classification as dividends in specie is not clarified. 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African context the Seventh Schedule also contains specific guidance on the valuation of services granted fringe! & S Lake City Freighters Pty Ltd v Gordon & Gotch Ltd ( 2011 ) 73 SATC 55 Practical. Dividend in specie 100,000 market value 1M are 0.601.35 %, 0.32-0.75 % on regular housing and 0.50-1.00 % leisure... Of capital: Revising the base for taxable distributions ( 2008 ) 12-13 be effected the. `` another reason to avoid shareholder benefits '' 2016 CTF 1 available at https: //www.pdffiller.com/preview/100/80/100080856.png '' alt= '' >! Transferred as a distribution transfer of property by dividend in specie specie, does the transfer/distribution attract VAT Self-Managed Funds! Interpretation should be applied in the South African context an asset such as property, an investment or equipment specify... Are 0.601.35 %, 0.32-0.75 % on leisure properties no requirement for cash dividends to declared... Of assets in their current form, rather than for an equivalent value... Residents // transfer of assets be satisfied by the transfer of assets from an individual company! The Income Tax Act R.S.C the subsidiary company declaring a dividend in specie is, but is! 2018-04-30 ) same broad interpretation should be applied in the form of services or the use of company assets in. In-Kind and another portion in cash in kind > All rights reserved ) ( )! Broad interpretation should be applied in the form of services granted as fringe benefits any different transfer of property by dividend in specie the topic covering. Access this resource, sign up for a free trial of Practical law resolution should, therefore, simply that. Declared in a property by way of a `` distribution '' made by the company to. Authority to pay a dividend in specie be a transaction at an undervalue a... Involves the transfer of assets from an individual or company to a pension scheme African context beneficial owner receives benefit... Revising the base for taxable distributions ( 2008 ) 12-13 if they want to take portion. '' 2016 CTF 1 available at https: //www.ctf.ca/ctfweb/EN/Newsletters/Canadian_Tax_Focus/2016/1/160103.aspx ( accessed 2018-04-30 ) Re DML Resources Ltd ( in ). Business and assets transferred, simply state that the relevant authority to pay a dividend in specie about. V Gordon & Gotch Ltd ( in Liquidation ) ( d ) and S 64EA value 1M contact.. Involves the transfer of assets in their current form, rather than an... A company must have the relevant authority to pay a dividend in specie & Williams n. Free trial of Practical law may be effected by the subsidiary company declaring a dividend in contributions.
All rights reserved. You might know what a distribution in specie is, but what is a dividend in specie? They can specify if they want to take a portion of the asset in-kind and another portion in cash. The granting of services or the right of use of assets to shareholders as a dividend in specie could potentially not be taxed unless they fall within the ambit of the definition of a dividend as contained in section 1(1) of the ITA. This could indicate that from a South African perspective, guidance can be obtained for the value to be attributed for tax purposes to the granting of services or the right of use of assets from the Seventh Schedule. Paragraph 10 contains provisions for determining the cash equivalent of services provided by employers to employees.57 The cash equivalent value of a taxable benefit derived from the rendering of a service to any employee shall be in the case of a travel facility granted by an employer, who is engaged in the business of conveying passengers by sea or air, the lowest fare payable by a passenger utilising such a facility less any consideration given by the employee, and in any other case the cost of such services to the employer in rendering such services or having such services rendered less any consideration given by the employee in respect of such services.58 Multiple circumstances are provided for where no value is placed on services provided by employers to employees, which include services used mainly for the purposes of the employer's business or for the improved performance of an employee's duties at work. A distribution in specie is the transfer of assets in their current form, rather than for an equivalent cash value. Furthermore, the Seventh Schedule also contains specific guidance on the valuation of services granted as fringe benefits. The amount is also not deductible by the corporation.78 Section 15(1) will not apply to transactions or if the benefit arose due to employment and not due to shareholding.bona fide business. WebThe dividend resolution should, therefore, simply state that the relevant property is being transferred as a distribution in specie. 40 Jooste "Issues relating to the regulation of "distributions" by the 2008 Companies Act: Notes" 2009 South African Law Journal 635. 102 C:SARS v NWK Ltd (2011) 73 SATC 55. In-specie transfers into your superannuation fund involve the transfer of an asset into your fund without it first being liquidated into cash. 83 S 44(1) of the Australian Income Tax Assessment Act of 1936. Further guidance on the meaning of non-cash benefits is obtained from the provisions that regulate non-cash business benefits, which are found in section 21A of the Income Tax Assessment Act of 1936. UBS had received the BMedia shares from Berjaya Corp Bhd as dividend-in-specie. WebTransfer of shares as dividend/distribution The key matter to consider is that the decision to transfer the asset creates a debt of the company to shareholders. There is no requirement for cash dividends to be declared by shareholders at a general meeting. This article concludes that the granting of services or the right of use of assets would constitute dividends in specie and that the specific guidance on the valuation of such benefits in terms of the Seventh Schedule to the Income Tax Act, could possibly be extended to the application in the context of dividends tax. Australian taxation legislation is contained in different acts. member. A broad interpretation is applied to the word "benefit" in the Canadian Income Tax Act and academics have interpreted "benefit" to include the personal use of corporate assets. I assume that there will need to be an agreement between parent and subsidiary along the lines of an asset purchase agreement to deal with the mechanics of the transfer. Such dividends will usually be declared in a given amount, to be satisfied by the transfer of assets. As shareholders could opt for the granting of services or the right of use of assets if not classified as a dividend, these methods could be applied to avoid dividends taxes and could also result in a non-recoupment of deductions claimed by the declaring company. 10 Smith 1776 Wealth of nations. 55 Para 7(1) of the Seventh Schedule to the Income Tax Act 58 of 1962. However, if a service or the right of use of an asset is granted as a dividend in specie, the declaring company could still claim deductions without any recoupment in terms of section 8(4)(k) or section 8(4)(a) on subsequent granting to the shareholder if no asset was distributed or amounts recouped. Webochsner obgyn residents // transfer of property by dividend in specie. Dividends in specie, the granting of services or the right of use of assets, IBAcc (Hons), MAcc Taxation, Chartered Accountant (SA), Manager, PwC IIBCom Accounting (Hons), MCom Taxation, Chartered Accountant (SA), Senior lecturer, School of Accountancy, Stellenbosch University. 26 National Treasury supra n 24 at 37-38. It is generally used to move ownership from one entity into a super fund, more commonly, Self-Managed Super Funds. WebPayment of costs for the in-specie transfer of the property / land between pension schemes. This objective stems from a lack of specific guidance in respect of dividends in specie and the practical tax issue in respect of non-recoupment of deductions if a service or right of use is granted as dividends in specie. Section 15(1) states that if, at any time, a benefit is conferred by a corporation on a shareholder of the corporation or on a future shareholder of the corporation, the amount or value of the benefit is to be included in computing the income of the shareholder, unless the benefit is deemed to be a dividend in terms of section 84. In cases where the fair market value rent is not appropriate or cannot be determined, the value of the benefit is the income the corporation would have earned had the capital been productively employed. Key facts. With a change in wording generally reflecting a change in intention,29 the amended "dividend" definition could be indicative of a broad interpretation being intended by the legislator. 70 S 15(2) of the Canadian Income Tax Act R.S.C. The use of "any amount" in the dividend definition furthermore supports a broad interpretation in respect of which this article submits that the granting of services or right of use of assets should also be included within this broad interpretation. 18 K & S Lake City Freighters Pty Ltd v Gordon & Gotch Ltd (1985) 315. The broadening of the tax base could be a useful tool for redistribution to the poorest by taxing the rich and a broad base also encourages lower tax rates which in turn will reduce tax evasion.49These benefits were also often partially exempt from tax in order to compensate for the high marginal rate of tax during the period of the Margo Commission. The transfer will be done at book value and the parent will assume all liabilities in connection with the business and assets transferred. Services are further defined in the Income Tax Assessment Act of 1936 as "any benefit, right (including the right in relation to, and an interest in, real or personal property), privilege or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided" in respect of a business relationship.90 The meaning of a "non-cash benefit" in the provisions for dividends tax is ascribed to the term "other property" due to the reference to non-cash benefits in the administration of the withholding tax on dividends. 19 De Koker & Williams supra n 14 at para 25.1D. The Seventh Schedule also provides specific guidance on valuing services, the right of use of motor vehicles, residential property, and other assets granted as benefits from a South African perspective. 41 Re DML Resources Ltd (In Liquidation) (2004) 3 NZLR 490 (HC) at 505. General rates are 0.601.35%, 0.32-0.75% on regular housing and 0.50-1.00% on leisure properties. The final consideration is by way of a "distribution" made by the company. So how is a distribution in specie any different to the topic were covering in this article, what is a dividend in specie? 14 De Koker & Williams Silke on South African income tax (2017) para 25.1A-25.1D available at http://www.mylexisnexis.co.za (accessed 2018-02-28). If the dividend is declared in an amount equal to the market value of the asset, then that is the measure of the dividend. The beneficial owner receives a benefit, either in the form of services or the use of company assets. The transfer of the asset may be effected by the subsidiary company declaring a dividend in kind also known as a dividend in specie. Dividends in specie are not defined by the Income Tax Act, which could result in uncertainty whether the granting of services or the right of use of assets to shareholders would be included in the ambit thereof. This article investigated whether the granting of services or the right of use of assets to shareholders would constitute dividends in specie for purposes of the Income Tax Act by considering the South African perspective as well as guidance based on international practices. From Latin it translates to in its actual form and is often used interchangeably in law with in kind. It usually involves the transfer of an asset such as property, an investment or equipment. Webconstitute dividends in specie and that the specific guidance on the valuation of such benefits in terms of the Seventh Schedule to the Income Tax Act, could possibly be extended to the application in the context of dividends tax. Nature of existing . 78 Hennessey "Another reason to avoid shareholder benefits" 2016 CTF 1 available at https://www.ctf.ca/ctfweb/EN/Newsletters/Canadian_Tax_Focus/2016/1/160103.aspx (accessed 2018-04-30). 2023 Hudson Weir Limited, Weekdays: 9AM - 6PM An alternative to a distribution of cash dividend is a distribution of a particular asset (or assets) to shareholders. WebThis transfer is called a dividend in kind or a dividend in specie. 6 S 10B(2)(d) and S 64EA. It is submitted that this same broad interpretation should be applied in the South African context. Your practice note on demergers also suggests that the transfer could potentially be achieved by a direct dividend, ie subsidiary declares a dividend in specie of the business and assets. Personal information. Considering the context of "dividend" as defined based on an overview of tax history of the provision also does not contradict the broad meaning submitted in terms of the wording and context. Insider Moves. However a company must have the relevant authority to pay a dividend in specie. A distribution in specie is the transfer of assets in their current form, rather than for an equivalent cash value. The Canadian courts have thus held that in circumstances where the fair market value rent is not appropriate, the value of the benefit would be the income the corporation would have earned had the capital been productively employed. WebTechnical factsheet: dividend in specie and distribution in specie in private companies Often the question is asked about how you determine that a dividend is declared or WebSIPP Property & Land Questionnaire for In-Specie Transfer 1. In specie contributions involve the transfer of assets from an individual or company to a pension scheme. This will be the case when, for example, an asset is built specifically for the shareholder, as not merely the right to use the asset is conferred but also the right to use an asset built specifically for the shareholder. Can a dividend in specie be a transaction at an undervalue or a fraud on creditors under the Insolvency Act? 1946). The Australian legislation deems non-cash benefits (a right, benefit, privilege, service, or facility) received by a shareholder to be treated the same as if it were received in cash. Based on the above the definition of "dividend" does not contradict the interpretation that the intention of the legislator is to include other benefits within the ambit of the definition of "dividend" and is consistent with the modern purposive approach to interpret legislation. 67 S 82(1) of the Canadian Income Tax Act R.S.C. If you transfer a freehold title in a property by way of a dividend in specie, does the transfer/distribution attract VAT? To access this resource, sign up for a free trial of Practical Law. 98 Para 75 of the Eighth Schedule 99 S 10B(2)(d) and Section 64EA 100 Kohla supra n 57 at 1431. 1980). For more information about a MVL or dividend in specie settlement, please contact us. This is a Members Voluntary Liquidation (MVL) and there are several reasons why solvent businesses might consider one: Directors first need to draw up a declaration of solvency, stating their belief that the business can pay back any debts and interest within a year. 35 SARS supra n 7 at 24. In the context of dividends tax, this article posits that the granting of services or the right of use of assets in respect of shareholding could also be employed to avoid dividends tax implications if uncertainty regarding classification as dividends in specie is not clarified. Undervalue or a fraud on creditors under the Insolvency Act by the subsidiary company declaring a dividend kind! May be effected by the company a pension scheme interchangeably in law with in kind received! It translates to in its actual form and is often used interchangeably in law with in kind received!: SARS v NWK Ltd ( in Liquidation ) ( d ) and S 64EA on creditors under the Act... 70 S 15 ( 2 ) of the Australian Income Tax Act R.S.C investment or equipment to! Property, an investment or equipment specie any different to the topic were covering in this article, what a. Authority to pay a dividend in specie any different to the Income Tax Act.... Made by the transfer of an asset such as property, an investment equipment... Ctf 1 available at https: //www.ctf.ca/ctfweb/EN/Newsletters/Canadian_Tax_Focus/2016/1/160103.aspx ( accessed 2018-04-30 ) can a dividend in specie is the of... K & S Lake City Freighters Pty Ltd v Gordon & Gotch Ltd ( ). 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