BEL200
LA2: Exempt income
‘income’ of a taxpayer is the amount of his gross income remaining after the
exclusion of any amounts exempt from normal tax for any year of assessment
Gross Exempt Income Taxable
Deductions
income income income
governments often use tax exemptions to incentivize investments, to provide relief
for the poor or to ensure that the income of organizations that are not directly
involved in commercial activities, such as religious organizations, amateur
organizations and charities are not subject to tax
If an amount does not form part of income, no deduction in respect of expenses
relating to the amount may be claimed in terms of ss 11(a) and 23(f)
e.g., dividends are included in gross income, but certain qualifying dividends are
excluded from income as they are exempt with the result that no expenses incurred
in the production of these dividends may be claimed under s 11(a)
Exemptions incentivizing investments
Interest received by natural persons: (s 10(1)(i))
Person receives interest from a source in SA, following amounts qualify as an
exemption:
< 65 ; the first R23 800 that the person receives during the year
=> 65 ; the first R34 500 that the person receives during the year
ONLY for natural persons
, Excludes tax-free investments
No exemption for foreign interest
Amounts received from tax-free investments: (s 12 T)
as an incentive to encourage household savings, all amounts received from ‘tax free
investments’ by a natural person (or a deceased or solvent estate of such person) is
exempt from normal tax
the capital gain or loss from the disposal of a ‘tax free investment’ is also disregarded
for CGT purposes
a dividend paid to a natural person from a tax-free investment is also exempt from
dividends tax
definition: a financial instrument or policy owned by a natural person and
administered by a person designated by the Minister of Finance
can only be issued by:
1) bank
2) long-term insurer
3) manager as defined in s 1 of the Collective Investment Scheme Control Act
4) government of RSA in the national sphere
5) a mutual bank
6) a co-operative bank
In short interest, dividends & CGT = exempt
Maximum contribution of R36 000 per year is allowed by a natural person, and a
lifetime contribution of R500 000
Where a person’s contribution amounts are in excess of the above limitations, 40%
of the excess contribution deemed to be normal tax payable
Annual/lifetime limit not affected by the following:
1) Amounts received from a tax-free investment and that are re-invested are not
considered when determining whether a person has exceeded limits
2) Any transfers of amounts between tax-free investments of a person are not
considered when determining whether a person has exceeded limits
Death/insolvency person dies, their tax-free investments are added to their
estate as property for the purpose of levying estate duties, but while the
investments are held by the estate, the returns from these investments will continue
to be exempt from income and dividends tax
EXAMPLE: On 1 March 2021, Kagiso contributed R2 500 per month to a fund that qualifies as a “tax-free
investment”. Kagiso received R1 500 interest and R800 dividends during 2022 from his investment. He
reinvested the interest and dividends that accrued during the year to the investment.
Calculate Kagiso’s income for the 2022 period of assessment assuming this is her only income
Total contribution made to the tax-free investment (2500 x 12 + 1500 + 800) R32 300
Less: amounts received from a TFI that is exempt from normal tax under s 12T(12) R2 300
R30 0000
LA2: Exempt income
‘income’ of a taxpayer is the amount of his gross income remaining after the
exclusion of any amounts exempt from normal tax for any year of assessment
Gross Exempt Income Taxable
Deductions
income income income
governments often use tax exemptions to incentivize investments, to provide relief
for the poor or to ensure that the income of organizations that are not directly
involved in commercial activities, such as religious organizations, amateur
organizations and charities are not subject to tax
If an amount does not form part of income, no deduction in respect of expenses
relating to the amount may be claimed in terms of ss 11(a) and 23(f)
e.g., dividends are included in gross income, but certain qualifying dividends are
excluded from income as they are exempt with the result that no expenses incurred
in the production of these dividends may be claimed under s 11(a)
Exemptions incentivizing investments
Interest received by natural persons: (s 10(1)(i))
Person receives interest from a source in SA, following amounts qualify as an
exemption:
< 65 ; the first R23 800 that the person receives during the year
=> 65 ; the first R34 500 that the person receives during the year
ONLY for natural persons
, Excludes tax-free investments
No exemption for foreign interest
Amounts received from tax-free investments: (s 12 T)
as an incentive to encourage household savings, all amounts received from ‘tax free
investments’ by a natural person (or a deceased or solvent estate of such person) is
exempt from normal tax
the capital gain or loss from the disposal of a ‘tax free investment’ is also disregarded
for CGT purposes
a dividend paid to a natural person from a tax-free investment is also exempt from
dividends tax
definition: a financial instrument or policy owned by a natural person and
administered by a person designated by the Minister of Finance
can only be issued by:
1) bank
2) long-term insurer
3) manager as defined in s 1 of the Collective Investment Scheme Control Act
4) government of RSA in the national sphere
5) a mutual bank
6) a co-operative bank
In short interest, dividends & CGT = exempt
Maximum contribution of R36 000 per year is allowed by a natural person, and a
lifetime contribution of R500 000
Where a person’s contribution amounts are in excess of the above limitations, 40%
of the excess contribution deemed to be normal tax payable
Annual/lifetime limit not affected by the following:
1) Amounts received from a tax-free investment and that are re-invested are not
considered when determining whether a person has exceeded limits
2) Any transfers of amounts between tax-free investments of a person are not
considered when determining whether a person has exceeded limits
Death/insolvency person dies, their tax-free investments are added to their
estate as property for the purpose of levying estate duties, but while the
investments are held by the estate, the returns from these investments will continue
to be exempt from income and dividends tax
EXAMPLE: On 1 March 2021, Kagiso contributed R2 500 per month to a fund that qualifies as a “tax-free
investment”. Kagiso received R1 500 interest and R800 dividends during 2022 from his investment. He
reinvested the interest and dividends that accrued during the year to the investment.
Calculate Kagiso’s income for the 2022 period of assessment assuming this is her only income
Total contribution made to the tax-free investment (2500 x 12 + 1500 + 800) R32 300
Less: amounts received from a TFI that is exempt from normal tax under s 12T(12) R2 300
R30 0000
