It is important to note that there is a difference between the tax and accounting recognition of dividends and dividend tax.
From a tax perspective the dividends can only be declared when the financial statements are finalised and thus there cannot be any penalties with effective from the tax/reporting period – dividend tax is payable from the date the financial statements are finalised and signed off.
For accounting purposes there is no deemed dividend as the dividends represents an actual distribution of profits to its shareholders. However, the dividend tax is the liability of the company and thus the dividend tax must be accounted as an expense by the company. It will be unethical for the company to charge the dividend tax to the shareholders as the zero/low interest rate loans represent a benefit to the company. The entry will be to Debit: Income tax expenses & Credit: SARS.
The deem dividend is based on the balance of the debit loan at the end of the reporting period. The individual tax is the responsibility of the employee and therefore for PAYE to be paid the members must be registered as employees. If not then the member must include the amounts in the tax return and make provision for their provisional taxes to avoid penalties. The reason for debit loans is entrenched by the mentally of members taking cash as drawings instead of salaries – thus the drawings is set off by the members’ salaries adjusting entry at the year end. The risk of using the debit loan accounts my breach the corporate veil principle as there may be no separation between the business bank account and the members bank account – use the business bank account for personal expenses. The remedy may be to register the members as employees with a fixed salary and the members’ remuneration adjustment at the end of the reporting period is regarded as a bonus payment.
Deemed dividend is a tax concept and was introduced avoid cash stripping of the business and thereby avoiding taxes. Dividends declared is an actual distribution of profit by the company and affect the financial statements via the accumulated profits.