Exempt Income-Relating to Employment

Exempt from Gross Income

What does Section(1)(gC) state about foreign pensions?

• Amounts received or accrued to any resident from the social security system of another country are exempt from normal tax[a10(1)(gC)(i)]

• Any lump sum, pension, or annuity that a resident receives from a source outside Sa as compensation for past employment outside the republic is exempt from normal tax[s10(1)(gC)(ii)

What amounts do not qualify in terms of s10(1)(gC)?

• Amounts received from South African retirement funds

• Amounts received from a South African long-term insurer

How will a taxpayer qualify for the s10(1)(gC) exemption?

If amounts are transferred to a South African fund or long-term insurer from a source outside SA

What is done if the lump sum, pension or annuity relates to services rendered partly in and partly outside South Africa?

• The full amount earned is included in gross income

• The portion of the amount that is exempt is calculated

What is the formula for calculating the portion of the amount exempt in lump sums, pensions, or annuities that relate to services rendered partly in and partly outside SA?

Amount Exempt= (Period services were rendered outside SA/Total period services were rendered) * Total Amount Received

Which portion of the pension, annuity or lump sum is exempt from tax?

The portion relating to services rendered outside SA

What exemption section deals with Unemployment Insurance Benefits?

Section 10 (1) (mB)

What does s10(1)(mB) state?

Any benefit or allowance payable in terms of the Unemployment Act 63 of 2001 is exempt from normal tax

What exemption section deals with Uniforms and Uniform Allowances?

Section 10(1)(nA)

What does s10 (1) (nA) state?

• The value of any uniform given to an employee by their employer OR

• Any allowance paid to the employee by the employer in respect of any such uniform is exempt if:

1. The employee is required as a condition of employment to wear the uniform while on duty and

2. The uniform is clearly distinguishable from ordinary clothing

Where are allowances received for Uniform included?

In taxable income not in Gross Income

What exemption section deals with Relocation Benefits?

Section 10 (1) (nB)

What does s10(1)(nB) specifically state?

• 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 then such benefit derived by the employee may be exempt in the employees’ hands

Provide a list of Relocation Benefits(Costs) that are exempt?

• Transportation of people, personal goods from old to new home

• Selling costs of previous residence and settling-in costs at new place permanent residence

• Hiring of residential accommodation for a maximum period 183 days after employment transfer

What is required for the employee to be eligible for the s10(1)(nB) exemption?

The employer must have borne the expenditure meaning the employer must have either:

• incurred the expenses itself OR

• have reimbursed their employee

What happens in terms of s10(1)(nB) if the employee pays a reallocation allowance to their employee? Provide an Example

The employee will be taxed in full on the allowance if the objective of the allowance is not to reimburse the employee for actual relocation expenses incurred

E.g. An allowance equal to a number of months’ salary

Which expenditure incurred does SARS allow the exemption for the reimbursement of?

• New School Uniforms or the replacement of curtains

• the registration of mortgage bond and legal fees in respect of a new residence that has been purchased

• Transfer duty in respect of the new residence

• Motor-Vehicle Registration Fees

• Telephone, Water and Electricity Connection

• The cancellation of the mortgage bond on the previous residence

• An agent’s fee on the sale of the employee’s previous residence

What amounts constitute a taxable benefit(not exempt) if they are made by the employer?

• Payments to reimburse the employee for loss on the sale of a previous residence during transfer AND

• Architect’s fees for the design or alteration of a new residence

What exemption section deals with Employment Outside South Africa?

s10(1)(o)(ii)

What does the s10(1)(o)(ii) exemption state?

The remuneration received by an employee for services rendered outside SA for or on behalf of any employer is exempt from normal tax if:

• The employee was 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

• The services were rendered during the period of absence from SA AND

• The services rendered for or on behalf of an employer, who can be situated in or outside SA

How many requirements must be met for an amount to qualify for the s10(1)(o)(ii) exemption?

All the requirements must be met

What does the COVID-19 concession state in terms of s10(1)(o)(ii)?

The number of days outside SA is now 117 days instead of 183 days

Which Year of Assessment’s does the COVID-19 concession in terms of s10(1)(o)(ii) apply to?

2020 & 2021

List the amounts the s10(1)(o)(ii) exemption apply to?

• Salaries

• Taxable Benefits(i.t.o. 7th Schedule)

• Leave Pay

• Wages

• Overtime Bonus

• Gratuity

• Commission Fees

• Emolument

• Allowances vested in terms of of share schemes(s8B)

• Restricted Equity Shares(s8C)

Who does the s10(1)(o)(ii) exclude?

Government Employees

Independent Contract

Self-Employed Individuals(Sole Props)

What other special days outside SA are considered part of the days services rendered in terms of s10(1)(o)(ii)?

Weekends

Public Holidays

Vacation Leave Days

Sick Leave Days

What amount does this s10(1)(o)(ii) exemption apply to?

The normal tax on the person’s remuneration

What does Proviso A to Section 10(1)(o)(ii) state?

A person is deemed to be outside SA , if a person is in transit through SA between 2 places outside SA and does not enter SA formally through a designated port of entry

What does Proviso C to Section 10(1)(o)(ii) state?

if an employee receives remuneration during a year of assessment that relates to services rendered by the employee in more that 1 year of assessment, the remuneration has then accrued to the employee over the period that the services were rendered

What is the formula for calculating the portion of remuneration exempt in terms of s10(1)(o)(ii)?

[Work days outside RSA during qualifying period(relating to source period)/Total work day in respect of the source period]*Remuneration

How much is the s10(1)(o)(ii) limited to?

The first 1.25 million of a person’s remuneration is exempt