Dividends are normally exempt from income tax in the employee's hands, but Section 10 carves out exceptions. Some dividends from employment-related share schemes do not qualify for the exemption and are taxed as remuneration instead.
What it means
The exemption exists so that ordinary dividends are not taxed twice. Where a dividend is really a disguised form of employment reward - for instance from restricted shares under a scheme - the law removes the exemption so it is taxed like salary. This stops share schemes routing pay through tax-free dividends.
Where it fits in
A dividend caught by this rule is an earnings component included in remuneration for PAYE in the period it accrues. It links closely to the Section 8A share-option treatment, and is reported under the IRP5 source code SARS prescribes for these amounts.
Key rules
- Most dividends are exempt; Section 10 removes the exemption for certain scheme dividends.
- Such dividends are taxed as remuneration, like salary.
- Prevents employment reward being paid as tax-free dividends.
- Reported under the prescribed IRP5 source code.
