Are undivided profits taxable?

[Idiosyncratic]

Interesting thought I had earlier that became a question... A company requires money to expand, and thus retaining profits in a savings account or similar for the future instead of distributing it could enable a company to do just that - expand. However, what would the tax implications of this be, I mean, it's undivided profit? Then, if there is tax implications, what would one have to do to expand a company while avoiding this?

Before anyone asks, yes, I did Google this and downloaded some SARS PDFs, and no, haven't found anything yet.

 

[AchmatK]

Profits are taxable whether distributed or not.

Dividends which are basically profits that are distributed has DWT applied at 15%(20% from from March.

 

[Idiosyncratic]

Profits are taxable whether distributed or not.

Dividends which are basically profits that are distributed has DWT applied at 15%(20% from from March.

...I should have clarified - further taxed

 

[AchmatK]

Accumulated profit/reserves will not be taxed again if the corporate tax of 28% has already been paid in previous tax years.

 

[Thor]

Yes they are

 

[Idiosyncratic]

Yes they are

Are you going to elaborate for us Thor?

 

[Tomtomtom]

A company requires money to expand, and thus retaining profits in a savings account or similar for the future instead of distributing it could enable a company to do just that - expand. However, what would the tax implications of this be, I mean, it's undivided profit?

It's taxed at 28%.

what would one have to do to expand a company while avoiding this?

Companies don't avoid this. They expand in spite of it -- with the remaining 72%.

 

[Idiosyncratic]

It's taxed at 28%.



Companies don't avoid this. They expand in spite of it -- with the remaining 72%.

I'm not sure that you're following at all...

 

[Idiosyncratic]

Accumulated profit/reserves will not be taxed again if the corporate tax of 28% has already been paid in previous tax years.

^I'm talking about undivided profits that has been taxed already being taxed again. Signates says no, it won't be, Thor, without giving a reason, says yes

 

[AchmatK]

^I'm talking about undivided profits that has been taxed already being taxed again. Signates says no, it won't be, Thor, without giving a reason, says yes

The point of having two taxes for corporates is to encourage reinvesting into the business to grow.

Corporate income tax is currently at 28%.

Dividend withholding tax is currently at 15% and set to increase to 20% in March.

The only reason only DWT was increased and not corporate income tax is to encourage reinvestment of the profits into the company and indirectly growing the economy. I don't believe it is enough though as technically the company declaring the dividend does not pay the DWT but is withholding the tax from the dividend already declared and the shareholder gets less. Increasing DWT only drives investors away.

The previous Secondary Tax on Companies system was actually a better system than DWT as companies had to pay the tax on dividends declared.

 

[Tomtomtom]

^I'm talking about undivided profits that has been taxed already being taxed again. Signates says no, it won't be, Thor, without giving a reason, says yes

Taxed again for what? The profit a company earns in a given year is taxed exactly once.

If the profit goes into a savings account and earns interest over the next year, the interest is income, and that goes into tax calcs in the next year.

If the profit (after tax) eventually gets paid out as a dividend, it gets taxed (again) but this time it's the recipient's liability.

The previous Secondary Tax on Companies system was actually a better system than DWT as companies had to pay the tax on dividends declared.

They're the same tax. All that changed was who received the bill for it.

 

[Thor]

Taxed again for what? The profit a company earns in a given year is taxed exactly once.

If the profit goes into a savings account and earns interest over the next year, the interest is income, and that goes into tax calcs in the next year.

If the profit (after tax) eventually gets paid out as a dividend, it gets taxed (again) but this time it's the recipient's liability.




They're the same tax. All that changed was who received the bill for it.

^^ this

 

[AchmatK]

They're the same tax. All that changed was who received the bill for it.

If you think that then you are mistaken.

STC and DWT are not the same thing. Yes, DWT replaced STC but it's entirely different even though both applies to dividends.

With STC, Companies had to pay 10% of the value of all dividends declared irrespective who it was paid to.

With DWT, the company or intermediary that pays out the dividend has to withhold 15%. This also depends on the nature of the shareholder as dividends paid to shareholders who are companies do not have DWT applied to it.

 

[AchmatK]

^^ this

That's not what you said.

 

[Swa]

^I'm talking about undivided profits that has been taxed already being taxed again. Signates says no, it won't be, Thor, without giving a reason, says yes

Profits get taxed once whether you distribute them or not. Where you invest the money makes no difference to that unless it's on a business expense in which case it decreases your profit.

The point of having two taxes for corporates is to encourage reinvesting into the business to grow.

Corporate income tax is currently at 28%.

Dividend withholding tax is currently at 15% and set to increase to 20% in March.

The only reason only DWT was increased and not corporate income tax is to encourage reinvestment of the profits into the company and indirectly growing the economy. I don't believe it is enough though as technically the company declaring the dividend does not pay the DWT but is withholding the tax from the dividend already declared and the shareholder gets less. Increasing DWT only drives investors away.

The previous Secondary Tax on Companies system was actually a better system than DWT as companies had to pay the tax on dividends declared.

Companies simply calculated how much they needed to declare to make up the total payed so it made no difference really. DWT is better not only because it's less complicated but certain funds, organisations and accounts don't pay it. Imo though both should go as it's double taxation and everyone should only pay according to their tax bracket.