South Africa proposes taxing dividends on certain hedging instruments from 2026 to align tax with IFRS accounting.
The South African government has proposed amending section 24JB of the Income Tax Act to tax dividends received on equity investments used as hedging instruments, measured at fair value through profit or loss (FVPL) under IFRS 9.
Currently, section 24JB exempts all dividends, including foreign dividends, from fair value adjustments for covered persons. The proposed change narrows this exclusion, ensuring that dividends on hedging instruments recognised at FVPL are included in taxable income. This adjustment is intended to align tax treatment with IFRS accounting standards.
The government identified that some covered persons use exempt dividends to hedge financial liabilities, such as equity-linked notes, where related payments are tax-deductible.
The amendment aims to prevent these tax mismatches by modifying section 24JB(2)(b) to bring dividends on hedging instruments back into taxable income while maintaining the original intent of synchronising taxation with IFRS reporting.
The amendment will apply to years of assessment starting on or after 1 January 2026.
