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Exempt Income: 23 Absolute exemptions you can take advantage of

by , 04 December 2013
Exempt income is income you can exclude when you calculate your income tax. You can exclude exempt income from your tax calculation when it meets one of these 23 conditions...

You need to be careful when it comes to exempt income.

The Income Tax Act states that you can only exclude exempt income from your tax calculation and not pay any income tax on it when it meets one of these conditions…

Here are 23 absolute exemptions you can benefit from (if they apply to you)

The Practical Tax Loose Leaf Service gives you 23 basic exemptions that are tax-free:

#1: Income or receipts of the government and of any other state, provincial administration and local authorities.

#2: Income any of the following taxpayers receive:

  • Welfare organisations
  • Institutions,
  • Closed corporations,
  • Trusts,
  • Black tribal authority; or
  • Registered water service provider that conducts scientific, technical research or provider useful services to the general public or state.

#3: The receipts and accruals of any political party registered under the provisions of Section 36 of the Electoral Act.

#4: No income or receipts are taxable for public benefit organisations operating within the scope of the public benefit organisation.

#5: Any receipts and accruals of a pension fund, preservation fund, retirement fund or provident fund if the fund is registered under Section 1 of the Pension Funds Act of 1956.

#6: Amounts received for levies by body corporates, share block companies and other associations of persons formed solely to manage the collective interest common to all its members.

#7: If you receive a war pension, or an award or a benefit under any law relating to the payment of compensation for diseases contracted in mining operations.

#8: Any disability pension paid under Section 2 of the Social Assistance Act, 59 of 1992, or Section 39(1) (c) or (d) of the Workmen's Compensation Act, 30 of 1941.

#9: Compensation paid in terms of the Workmen's Compensation Act or the Compensation for Occupational Injuries and Diseases Act 1993.

#10: With the introduction of a residence basis of taxation, foreign pensions should be subject to tax if you receive or accrue it. But, the government announced a moratorium on the taxation of foreign pensions in 2006.

Accordingly, any amount received by or accrued to a resident:

  • Under the social security system of any other country; or
  • From a source outside South Africa (which isn't deemed to be from a source in South Africa) are exempt.

#11: Any funeral benefits payable under Section 6F of the Special Pensions Act of 1996.

#12: If you receive payouts for death, disability or severe illness and the policy is a risk policy with no cash value or surrender value linked to that policy.

#13: Interest or deemed interest you receive or accrue if you're a non-resident of SA provided you're a natural person who hasn't been in the country for more than 183 executive days in aggregate during the year or has operated through a business that operates from SA.

#14: Dividends you receive or accrue when:

  • Dividends paid from a collective Investment Scheme;
  • Dividends from an equity instrument as defined in Section 8C; and
  • Dividends you receive from a cession.

#15: If you're an author and you receive or accrue amounts on the grant of interest in a copyright if the amount is chargeable with income tax in a country other than the Republic.

This exemption doesn't apply to a company or to someone who isn't the first owner of the copyright under the Copyright Act.

#16: Any amount you receive or allowance you get from UIF.

#17: If you wear a special uniform that's clearly distinguishable from ordinary clothing, its value or the amount of an allowance made for the uniform is exempt.

#18: The market value of a qualifying equity share you receive or accrue on the specific date (grant date) is exempt on the day you receive the grant.

This means if you received a share option, that the amount is exempt from your taxable income on grant date.

#19: Any amount received or accrued to a person that constitutes an equity instrument as expressed in Section 8C of the Income Tax Act and the instrument hasn't vested at the time of acquisition or disposal of the asset.

This means if you receive a share option and the share option hasn't vested; the amount is exempt.

#20: Remuneration derived by an officer or crewmember of a ship engaged in the international transportation for reward of passengers or goods if he was outside the Republic for a period or periods exceeding 183 full days in aggregate during the year of assessment.

#21: Any bursary or scholarship you receive to study at a recognised educational or research institution is exempt provided that:

  • If you don't pass (unless the reason is due to death or illness), you'll have to pay back money you receive. If you don't have to pay back the money, you'll pay tax when you receive the bursary.
  • If a relative of yours receives the bursary or scholarship and you don't earn more than R100 000 per year of assessment and the bursary doesn't exceed R10 000 then only the bursary is exempt. If the amount is above R10 000 and you earn more than R100 000 then the bursary will be taxable.

#22: Any amount received or accrued by way of alimony or maintenance under an order of judicial separation or divorce.

#23: Any amount received by or accrued to the Small Business Development Corporation Limited by way of any subsidy or assistance payable by the State.

You'll only be able to exclude exempt income from your tax calculation if you tick any of these boxes. So make sure you comply.

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