Taxation Exempt Income

Flashcards about Taxation Exempt Income

What is the formula for calculating Income (as defined)?

Gross Income LESS: Exempt Income

What is the primary characteristic of exempt income?

It is not subject to normal tax.

What section of the Income Tax Act deals with general exemptions?

Section 10

To whom does the section 10(1)(i) exemption for RSA interest apply?

Natural persons (residents and non-residents)

What are the local interest exemption amounts for natural persons under 65 and 65 or older?

R23 800 for under 65, R34 500 for 65 and older

What is the key condition for RSA source interest received by a non-resident to NOT be exempt?

If the debt from which the interest arises is effectively connected to a permanent establishment of the non-resident in RSA.

According to Section 12T, what are tax free investments

A tax free investment is a financial instrument or policy, owned by a natural person and administered by a person designated by the Minister of Finance.

What are the annual and lifetime contribution limits for tax-free investments?

R36 000 annually and R500 000 lifetime

What is the penalty for exceeding the contribution limits for tax-free investments?

40% of the excess contribution is deemed normal tax payable

What type of annuities qualify for the section 10A exemption?

Annuities purchased from an insurer for a lump sum cash consideration.

What portion of purchased annuities is exempt in terms of section 10A(2)?

The capital portion.

In the formula 'Y = A / B x C' for calculating the capital element of an annuity, what does 'A' represent?

The amount of the total cash consideration paid by the purchaser of the annuity

According to Section 10(1)(k)(i), are dividends received from a South African resident company exempt from normal tax?

Yes

In which cases are dividends NOT exempt from normal tax?

Dividends that form part of an amount that is paid as an annuity and amounts distributed by a Real Estate Investment Trust (REIT) or a controlled company in respect of a REIT (subsidiary of a REIT) to a resident.

What is the scope of the foreign pensions exemption under Section 10(1)(gC)?

Amounts received by a resident from the social security system of another country or any lump sum, pension, or annuity that a resident receives from a source outside South Africa as compensation for past employment outside the Republic

Under Section 10(1)(gC), what formula is in place to calculate the amount of the exemption if the services were partially in and out of South Africa?

The period during which services were rendered outside RSA / Total period during which the services were rendered * Total amount received = Amount exempt

According to Section 10(1)(mB), what benefits are exempt?

Any benefit or allowance payable in terms of the Unemployment Insurance Act, 2001 (Act No. 63 of 2001) will be exempt.

What conditions must be met for uniforms and uniform allowances to be exempt under Section 10(1)(nA)?

The employee is required as a condition of employment to wear the uniform while on duty; and the uniform is clearly distinguishable from ordinary clothing.

Under what conditions are relocation benefits exempt under Section 10(1)(nB)?

If an employee relocates as a result of an appointment, transfer or termination of employment AND the employee’s relocation costs are borne by the employer.

According to Section 10(1)(o)(ii), for what period must an employee be outside South Africa for remuneration to be exempt?

Employee must be outside SA for more than 183 full days in total during any period of 12 months, AND the period outside SA includes a continuous period of absence of more than 60 full days during that 12-month period AND services were rendered during the period of absence from South Africa.

According to Section 10(1)(o)(ii), what amount of an employee's remuneration will be exempt?

Only the first R1.25 million will be exempt.

What 3 requirements must be met for bursaries (or scholarships) to qualify for the education tax exemption?

It must be a bona fide scholarship or bursary; it must be granted to enable or assist a person to study; and the person must study at a recognised educational or research institution.

What are the limitations to a bursary for both people with and without a disability toward grades R to 12 and NQF levels 1 to 4?

Without: R20 000, With: R30 000

What are the limitations to a bursary for both people with and without a disability toward NQF levels 5 to 10?

Without: R60 000, With: R90 000

Are RSA source royalties paid to non-residents exempt from normal tax or subject to witholding tax?

Exempt

Are payments to foreign entertainers or sportspersons exempt from normal tax if that amount was subject to section 47A to section 47K withholding tax?

Yes

Under section 10(1)(u), are amounts received by a person from their spouse or former spouse by way of alimony or allowance exempt from normal tax?

Yes, is it was granted in consequence of proceedings instituted after 21 March 1962 or under an agreement of separation entered into after that date.