Dividends: The tax options

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Merlin

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Hello,

I am due a dividend payout soon.

Today I was asked to choose between paying dividend witholding tax, or capitals gains tax.

Previously I opted for DWH, however, having reread write-ups on several websites today, I've now opted for CGT going forward, with my understanding that I am likely to pay a lesser tax amount overall.

I would still appreciate a layman's explanation of these options.

Have I made a smart choice?

Thank you.
 
Merlin said:
Hello,

I am due a dividend payout soon.

Today I was asked to choose between paying dividend witholding tax, or capitals gains tax.

Previously I opted for DWH, however, having reread write-ups on several websites today, I've now opted for CGT going forward, with my understanding that I am likely to pay a lesser tax amount overall.

I would still appreciate a layman's explanation of these options.

Have I made a smart choice?

Thank you.
Click to expand...

What sort of crack they were smoking when they gave you that option?
 
Merlin said:
Hello,

I am due a dividend payout soon.

Today I was asked to choose between paying dividend witholding tax, or capitals gains tax.

Previously I opted for DWH, however, having reread write-ups on several websites today, I've now opted for CGT going forward, with my understanding that I am likely to pay a lesser tax amount overall.

I would still appreciate a layman's explanation of these options.

Have I made a smart choice?

Thank you.
Click to expand...
No dividend payout will attract CGT. CGT comes into play when shares are sold.

DWT will be applicable to dividends you receive either locally or abroad. Different rates apply based on country and applicable tax treaties.

But CGT is not applicable to dividends... not sure what you selected or how they even communicated this to you

Dividends Tax | South African Revenue Service

Dividends Tax is a tax on shareholders (beneficial owners) when dividends are paid to them, and, under normal circumstances, is withheld from their dividend
www.sars.gov.za www.sars.gov.za

In short you have made a choice that is simply not possible, DWT will apply (irrespective of your CGT selection) unless you have accidentally sold your shares.
 
Last edited:
I've been using EasyEquities since early 2021. Only one of my equities triggers these selection emails.

The company I've invested in gives me the option of a dividend, versus a capital return. My understanding is that the latter attracts CGT, and that I am likely liable for taxation on this when I sell the shares.
 
Merlin said:
I've been using EasyEquities since early 2021. Only one of my equities triggers these selection emails.

The company I've invested in gives me the option of a dividend, versus a capital return. My understanding is that the latter attracts CGT, and that I am likely liable for taxation on this when I sell the shares.
Click to expand...
Your dividends attract dwt not cgt.
Sale of shares attracts cgt (unless you sell often then it's income tax)
 
Merlin said:
I've now opted for CGT going forward, with my understanding that I am likely to pay a lesser tax amount overall.
Click to expand...

The problem is you will also then have less capital overall. So not necessarily the right choice.

Obviously once you have sold your shares you don't get to do it again, and they're not available to generate any future dividends either.

In trying to minimise tax just be careful of cutting off your nose to spite your face.
 
Thanks Ttt.

Is it akin to a TFSA, in that I have a limited amount of capital over my lifetime?

Excuse the layman's question. I'm still relatively new to this.

I will see if I can switch back to DWT going forward.
 
Merlin said:
Thanks Snyper.
Click to expand...
The only reason I didnt mention return of capital in my response is that its typically a structuring issue. I would never have thought you could make this call on EasyEquities
 
Thanks Snyper.

It's an email sent via EasyEquities. Presumably it is a regulatory thing, applicable to the particular company one invests in.

Last year, and this year, the request was made to respond with my choice via email, not on the EE platform.
 
Return of capital should reduce your base cost - the implication being that the amount of CGT due later will be higher.
 
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