EXEMPT
INCOME
SOUTH AFRICAN INTEREST
In terms of section 10(1)(i), a taxpayer (only natural persons) under the age of 65
is entitled to an exemption of up to R23 800 and a taxpayer over the age of 65 is
entitled to an exemption of up to R34 500 against interest accrued from a source
in the Republic (excluding interest from a tax-free investment). From 1 March
2023, where a person has a year of assessment of less than 12 months, the
interest will be applied pro-rata.
Interest received or accrued from a tax-free investment (as defined in section 12T)
is exempt from income tax. The amount contributed to these investments (in total)
is limited to R36 000 per year of assessment and R500 000 in total (excluding
reinvestment of interest).
SOUTH AFRICAN INTEREST (EXAMPLE)
IN EACH OF THE FOLLOWING CASE STUDIES YOU ARE REQUIRED TO CALCULATE THE TAXPAYER’S ‘INCOME’:
Taxpayer A B C D
Age 48 35 76 68
Foreign interest received
- R2 900 R3 000 R600
South African interest received
(not tax-free investment) R15 000 R24 000 R27 000 R39 500
Interest received – (tax-free
investment) - - R1 900 -
SOUTH AFRICAN INTEREST (EXAMPLE)
A B C D
Taxpayer
R R R R
Foreign interest received - 2 900 3 000 600
South African interest received (not tax-free
investment) 15 000 24 000 27 000 39 500
Interest received – (tax-free investment) - - 1 900 -
Gross Income 15 000 26 900 31 900 40 100
Less: Exempt Income
SA interest received (not tax-free investment)
(15 000) (23 800) (27 000) (34 500)
Interest received (tax-free investment) - - (1 900) -
Income nil 3 100 3 000 5 600
DIVIDENDS (OTHER THAN FOREIGN DIVIDENDS AND
HEADQUARTER COMPANY DIVIDENDS)
In terms of section 10(1)(k), local dividends received by or accrued to a taxpayer are
exempt from normal tax. Some dividends, however, are not exempt (these do not
form part of TAXN125 syllabus).
FOREIGN DIVIDENDS
All foreign dividends are included in full in gross income. However, the following
dividends are exempt:
Full exemption (section 10B(2)): The foreign dividend is exempt if received by a
person who holds at least 10% of the equity share and voting rights in the
company declaring the foreign dividend. The exemption only applies when the
dividend is paid in respect of an equity share.
Partial exemption (section 10B(3)): If the above exemption does not apply, the is a
partial exemption that is applied to the dividend. The exemption for individuals
and trusts is calculated as the foreign dividends received multiplied by 25/45.
FOREIGN DIVIDENDS (EXAMPLE)
Simon earned foreign dividends, the equivalent of R2 400. The dividends are not
subject to the full exemption.
Gross income: Foreign dividends received 2 400
Less: Exempt income (2 400 x 25/45) (1 333)
Taxable portion 1 067
UNIFORMS AND UNIFORM ALLOWANCES
Section 10(1)(nA) provides that where an employee, as a condition of employment,
is required to wear a special uniform while on duty;
which is clearly distinguishable from ordinary clothing,
the value of the uniform provided by the employer (or uniform allowance) is exempt
from taxation.
UNIFORMS AND UNIFORM ALLOWANCES (EXAMPLE)
Rose Turpin is employed by Blooming Gorgeous, a florist. Rose receives a uniform
allowance of R1 000 per month because she is only allowed to wear pink clothes to
work. During the year Rose spent R8 900 on pink clothes. She has all her receipts.
What will the income tax implications be?
RELOCATION BENEFITS
Section 10(1)(nB) determines that the benefit an employee receives, where their employer
paid the cost to relocate an employee from one place to another on the appointment,
transferal, or termination of the employee’s employment, may be exempt from tax. The
following expenditure qualifies for the exemption:
Transporting the employee, their household and their personal possessions from their
previous place of residence to their new place of residence;
The costs incurred by the employee in respect of the sale of their previous residence
(cancellation fees and agent’s commission if residence is sold) and in settling in
permanent residential accommodation at their new place of residence (bond registration
costs and transfer duty);
Settling-in costs, which include new school uniforms, replacement curtains, motor vehicle
registration fees; telephone, water and electricity connection fees.
Hiring residential accommodation in a hotel or elsewhere for the employee or members of
their household for a period ending 183 days after the transfer took effect or after they
took up appointment (if it was occupied temporarily).
RELOCATION BENEFITS
The costs of these expenses must have been incurred by the employer, or the
employer must have reimbursed the employee for them. Relocation allowances
without proof of expenditure are not exempt.
EMPLOYMENT OUTSIDE THE REPUBLIC – FOREIGN
SERVICES
Section 10(1)(o)(ii) provides for the exemption of up to R1 250 000 in respect of:
Salary, leave pay, wages, overtime pay, bonuses, gratuities, commissions, fees, emoluments or allowances;
Including any fringe benefits as per the 7th Schedule; and
Including any subsistence allowance, travel allowance, holder of public office allowance;
As well as any taxable amounts derived from broad-based employee share plans and a taxable amount arising on
the vesting of equity instruments,
derived by an employee in respect of services rendered outside the Republic for or on behalf of an employer, if the
employee was outside the Republic
For a period or periods exceeding 183 full days in aggregate during any 12-month period commencing or ending
during a year of assessment; and
For a continuous period exceeding 60 full days during such period of 12 months.
This exemption does not apply to remuneration derived in respect of the holding of a public office or from services
rendered or work or labour performed for or on behalf of an employer in government; or a constitutional institution as
listed in the Public Finance Management Act (Schedule 1); or a public entity listed in Schedule 2 or 3 of the above Act;
or a municipal entity as defined in the Local Government: Municipal Systems Act.
SCHOLARSHIPS AND BURSARIES
A bona fide scholarship or bursary granted to enable or assist a person to study at a recognised educational or
research institution is exempt from normal tax in terms of section 10(1)(q). Section 10(1)(qA) exempts the same but
for persons with a disability.
‘To study’ refers to the formal process whereby the person to whom the scholarship or bursary has been granted
gains or enhance their knowledge, intellect or expertise. It is not a requirement that a degree, diploma or certificate
be awarded on completion of the course. Scholarships and bursaries awarded solely on merit are always exempted
(and not only for employees).
Scholarships or bursaries paid to non-employees
These scholarships and bursaries are awarded based on merit and are not subject to normal tax.
Employers to employees
In terms of section 10(1)(q) and (qA), where the scholarship or bursary is granted by an employer (or associated
institution) to an employee, it will only be exempt where the employee agrees to reimburse the employer if they fail
to complete their studies for reasons other than death, ill-health or injury.
SCHOLARSHIPS AND BURSARIES
Employers to relatives of employees
Persons without disabilities
Bursaries or sholarships granted to relatives of an employee are exempt up to an amount of:
R20 000 in respect of grade R to grade 12 (in terms of the South African Schools Act) or a qualification
to which an NQF level 1-4 has been allocated;
R60 000 in respect of a qualification to which an NQF level 5 up to and including 10 has been
allocated.
Persons with disabilities
Where the bursary or scholarship is granted to a person with a disability who is a member of the family of
the employee (in respect of whom the employee is liable for family care and support), the bursary is
exempt up to an amount of
R30 000 in respect of grade R to grade 12 (in terms of the South African Schools Act) or a qualification
to which an NQF level 1-4 has been allocated;
R90 000 in respect of a qualification to which an NQF level 5 up to and including 10 has been
allocated.
Where the employee has a remuneration proxy of more than R600 000, the full scholarship or bursary will
be taxed.
ALIMONY RECEIVED
Section 10(1)(u) provides that an amount received by or accrued to a person from
their spouse or former spouse by way of alimony, allowance or maintenance for
themselves in terms of an order of judicial separation or divorce is exempt from
taxation if the proceedings were instituted after 21 March 1962 or in terms of an
agreement of separation entered into after that date.
QUESTION