The negative economic impact of the global COVID-19 pandemic has been widespread and has led to a number of adverse outcomes. In the listed equity sector, the non-declaration of dividends or the postponement and/or the cancellation of dividends, which was once a rare occurrence, has become more prevalent.

Although dividends declared by a South African resident company may qualify for the domestic exemption from income tax in terms of the Income Tax Act, 1962, certain dividends do not qualify for this exemption and are ultimately taxable in the shareholder's hands. For example, dividends declared by South African REITS are not exempt in the hands of South African residents. Dividends received by parties who have entered into specific transactions over South African listed shares such as derivatives, share loans and collateral transfers may also not qualify, either fully or partially, for the domestic dividend exemption.

The postponement and/or cancellation of dividend payments may result in tax implications for taxpayers which differ from the overall economic outcome. A high-level overview of certain South African tax considerations to be borne in mind in respect of taxable (ie, non-exempt dividends) in respect of listed shares issued by South African resident companies is set out below.


South African tax resident and non-resident persons are required to include dividends received or accrued in respect of shares issued by South African resident companies in their gross income.

From a timing perspective, the full amount of the dividend will be included in the gross income of the relevant shareholder, and therefore taken into account for income tax purposes, upon earlier receipt or accrual thereof. In the context of listed shares, dividends declared in respect thereof will be seen to “accrue”, for tax purposes, to the persons who are identified as a shareholder on the dividend record date. Since the actual payment of dividends is effected after the record date, the dividend record date is generally the date on which the dividend is to be taken into account for tax purposes.  

As set out above, the dividends which are under consideration are those which do not qualify for the domestic dividend exemption

Postponement of dividend payment

Where a dividend is declared and the payment date thereof is subsequently postponed, the shareholder on the record date will be required to include the amount of the dividend in its gross income, regardless of when payment of the dividend is actually made.

A scenario could arise where the timing delay between the accrual date and the postponed payment date of a dividend is such that the date of accrual (ie record date) falls in a particular year of assessment and the postponed payment date falls in a subsequent year of assessment. Since the dividend is not exempt from tax, the impact thereof could simply be that a person holding the shares may be required to fund the amount of tax payable in respect of the taxable dividend without having received actual payment thereof.

However, the impact may be wider in the context of the postponement of a dividend payment date in respect of transactions such as derivatives, share loans and collateral transfers entered into in respect of South African listed shares. In terms of these transactions, the person who is entitled to the dividend may be required to make derivative or other related payments to a transaction counterparty, which payment may take into account the dividend in respect of the underlying share.

Where the date of accrual of the dividend falls in a particular year of assessment and the postponed payment date falls in a subsequent year of assessment, the shareholder on record date may only be permitted a deduction of the derivative or related payment in the subsequent year of assessment, depending on aspects such as the terms of the transaction concluded by the parties. This could lead to a scenario where a party is required to account for and make payment of income tax on the gross taxable dividend in a year of assessment, only to be permitted the relevant deduction in a subsequent year of assessment.

This is further complicated by the fact that provisional taxpayers are required to submit provisional tax payments based on an estimate of taxable income every six months and in each case a judgement will need to be made as to whether there is a reasonable expectation that the dividend will be paid in a particular year of assessment or not.

Cancellation of dividends

The cancellation of a dividend which has been declared may require careful consideration, in particular, where the cancellation occurs after dividend record date. This is on the basis that, as set out above, the shareholder on record date will be required to include the amount of the dividend in its gross income.

If a dividend payment is postponed and then subsequently cancelled, the economic impact for the relevant shareholder on record date is that the dividend is simply never received. However, from a tax perspective, the accrual of the dividend takes place on record date, regardless of any potential future cancellation thereof.

Originally Published by ENSafrica, February 2021

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.