Tax On Dividends And Bonus Shares Explained

Press, Volume CIV, Issue 30763, 29 May 1965, Page 16

Tax On Dividends And Bonus Shares Explained

Questions on taxation on dividends and the effect of bonus shares on ordinary income, raised by a correspondent, “Puzzled Taxpayer,” in a letter to the editor of “The Press,” were answered by the district commissioner of taxes (Mr T. M. Hunt).

The correspondent’s letter was as follows: — “The 1965, IR3 return-of-income forms says: ‘Where you have dividends, and your total taxable income appears above the 7s bracket (in red),

take away the total dividends from ‘ordinary income’ and calculate at 7s in the £7, then add to tax in ordinary income.’ By this method, where the ‘ordinary’ income is well below the red figures, the tax works out ata higher figure than if the whole income were graduated. Would the tax division clarify this? Also, where, and what effect do bonus shares have on the total income?”

Mr Hunt, in reply, said that in the circumstances mentioned, the provisional tax table could give a figure that was too high. However, the form pointed out that it was only an approximation, and that the tax office would give an exact amount on request. The department invited these inquiries. As to bonus shares, if, as in most cases, they were paid up out of pre-1958 profits, they were treated as nonassessable income, said Mr Hunt. This meant that they were not directly taxable, but were taken into account in arriving at the rate of tax payable on taxable income. “For provisional tax payments, they are ignored, but are taken into account when the exact tax assessment is made after the end of the year,” said Mr Hunt.