Don't know what exempt income is? If so, here's a simple explanation for you…
Exempt income explained
The Practical Tax Loose Leaf Service explains that exempt income is income you can exclude when you calculate your income tax.
If an amount's included in gross income, you can then check if any of this income is exempt from income tax. You can contact SARS to get a full list of exempt income.
If it is, you can deduct this amount from 'gross income' to get your true 'income'.
But there's a catch…
Before you exclude any income, you must know if it qualifies as a full exemption or just a partial exemption.
Let's have a look at the difference between the two.
The difference between absolute and partial exemptions
Absolute exemptions exempt you from tax on all income you receive or accrue, while partial exemptions exempt you from certain income only, or up to a specified maximum amount.
Here are two reasons why some income is exempt:
Caution: While your income may be exempt from income tax; you may still have to pay other taxes. If for example, you receive dividends, they are exempt from income tax but you'll still have to pay dividends tax.
Once you've determined if your income is exempt, you won't have to pay any income tax on it. This means you'll have more cash to keep in your business.