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The Income Tax Act currently contains complex rules which seek to recharaterise preference share funding as debt in certain circumstances.

This means that what would normally be a tax-free dividend which is received by a holder of a preference share will be recharacterised and deemed to be income, which will be taxed in the hands of the holder of the shares.

“Numerous transactions have been designed to avoid these rules by, for example, interposing a trust between the holder and the issuer of the preference shares.

“The Taxation Laws Amendment Act has introduced various amendments to provide that the dividends on such arrangements will continue to be taxed in the hands of the recipients of the dividend,” Cridlan cautions.