QUESTION $2$

$(29$ marks$)$

You have been working as a Tax Consultant at a Tax Consulting Firm for the past several years and are well known for being an expert when it comes to complex dividend and company distribution transactions. You were given the following matters to resolve.

All these matters are unrelated.

Matter $1$

Magnetic Limited is a resident of the Republic of South Africa. Magnetic Limited's equity shares are held as follows:

$25\%$ by non$-$residents from a country where the agreed tax rate on dividends cannot exceed $5\%.$

$35\%$ by beneficial owners who are not exempt from the dividends tax.

$28\%$ by beneficial owners who are exempt from the dividends tax.

$12\%$ by a regulated intermediary.

On $28$ February $2023,$ Magnetic Limited declared a dividend of R$560000$ to the company's shareholders.

Matter $2$

Sports $($Pty$)$ Limited, a resident of the Republic of South Africa, has two resident shareholders, Mrs$.$ Themba who holds $45\%$ of the shares in Sports $($Pty$)$ Limited, and Mr$.$ Thabo, who holds the remaining $55\%$ of the shares. During the company's financial year which ended on $28$ February $2023,$ Sports $($Pty$)$ Limited made the following distributions:

Sports $($Pty$)$ Limited invested some of the excess cash reserves of the company in shares of a JSE$-$listed company, Fitness Limited. On $31$ March $2022,$ these shares in Fitness Limited were distributed to Mrs$.$ Themba and Mr$.$ Thabo. The quoted value of the Fitness Limited shares held by Sports $($Pty$)$ Limited at the close of business was R$980000$ on $30$ March $2022$ and R$1100000$ on $31$ March $2022.$

A dividend of R$3100000$ was declared on $30$ September $2022.$ Mrs$.$ Themba elected to receive her portion of the dividend in cash, while a building to the value of R$1705000$ was transferred to Mr$.$ Thabo in respect of his portion of the dividend.

$4$

HTAX$331-1-$Jan$-$June$2023-$SA$1-$ELK$-$V$3-12122022$

Matter $3$

Techno $($Pty$)$ Limited, a resident of the Republic of South Africa, was voluntarily liquidated on $31$ June $2023$ and distributed R$1800000$ to its holders of equity shares. R$250000$ of the R$1800000$ represented a reduction in Techno $($Pty$)$ Limited's contributed tax capital.

REQUIRED:

$2\mathrm{.}1$ With reference to Matter $1,$ calculate the dividends tax to be withheld by Magnetic Limited on the dividend declared on $28$ February $2023.$

Show all your calculations and round your answers to the nearest rand.

$(8$ marks$)$

$2\mathrm{.}2$ With reference to Matter $2,$ calculate the dividends tax per distribution and clearly state who is liable for the dividends tax.

Show all your calculations and round your answers to the nearest rand.

$(10$ marks$)$

$2\mathrm{.}3$ With reference to Matter $3,$ discuss if the distribution of R$1800000$ is a 'dividend'.

Support your answer with references to the relevant sections in the Income Tax Act.