Unit 1 - Individuals - Exemptions

Question 1

What is the exemption of Dividends ito s 10(1)(k) = Local dividends?

Answer 1

= 100% exemption

Question 2

When is the exemption of Dividends ito s 10B(2) = Foreign dividends 100% exempt?

Answer 2

• Shareholder of dividends holds =>10% of equity in company
• Shareholder receives dividend from foreign company and the shareholder is a resident in the country of the foreign company
• Foreign dividend is on foreign share listed on SA stock exchange & is not dividend in specie.

Question 3

When is the exemption of Dividends ito s 10B = Foreign dividends not 100% exempt?

NB**

Answer 3

s10B(3) = If shareholder of dividends holds <10% of equity in company

A = B x C

A = Amount to be exempted for YoA

B = 25/45 - natural persons, deceased/insolvent estate, a trust

C = Aggregate of foreign dividends received by/accrued to individual during YoA that is not exempt from normal tax ito s10B(2).

Question 4

What does s23(q) disallow as a deduction?

Answer 4

Any expenditure incurred in the production of income in the form of foreign dividends.

Question 5

s10B(5) - Annuities & pmts out of foreign dividends

Answer 5

Tax exemption does not apply iro any portion of an annuity/any other payment out of any foreign dividend.

Question 6

s10B(6) - EE Share scheme dividend will not be exempt?

Answer 6

• Received by/accrued to person iro of
  services rendered/to be rendered, or
  iro/in virtue of Employ/holding of office,
  unless:
  
  • Person holds the foreign share, OR
  • The foreign share/interest in foreign
    share is a restricted equity instrument
    held by that person
• Foreign dividends that is an amount pd to
  buy back/redeem restricted equity
  instrument
• Foreign dividend that is received/accrued
  in anticipation/in course of the winding
  up, liquidation, deregistration/final
  termination of the company iro of
  restricted equity instrument.
• Foreign dividend on a restricted equity
  instrument, if foreign dividend constitutes
  any equity instrument that is not itself
  restricted ito s8C.

Question 7

S10(1)(i) - What is the local interest exemption?

Answer 7

Natural person, Resident in SA.

65 yrs =< = R34 500
< 65yrs = R23 800

Foreign interest = Not exempt

Question 8

s12T - Tax free investments

Define a tax free investment?

Answer 8

Any financial instrument/policy that is administered by any person/entity designed by Min. of finance by notice of Gov. Gazette.

The investment must be owned by:
- Natural person.
- Deceased/insolvent estate of natural
person.

Question 9

s12T - Tax free investments

Exemption?

Answer 9

Any amount (interest) received by/accrued to a natural person/deceased/insolvent estate, iro tax free investment. Incl income and any profit on the disposal of the tax-free investment.

• Tax on capital gains/loss is disregarded
• Dividends are exempt as well.

Question 10

s12T - Tax free investments

What are the contribution limitations?

Answer 10

=< R36 000 in a 12-month period
=< R500 000 in aggregate over lifetime

Any contributions in excess will be subject to penalties = 40% of any excess amount contributed.

• Income/proceeds from tax free
  investments do not affect the
  contribution limits.
• Any transfer from 1 tax free investment
  to another does not affect the
  contribution limits.

Question 11

s10(2) - Dividends & Interest pd as an annuity

Answer 11

Exemptions on interest and dividends does not apply if they are received as an annuity.

Question 12

s10(1)(u) - Alimony & Maintenace

Answer 12

Exempt in hands of recipient spouse.

Divorce/separation proceedings took place after 21/3/1962

Question 13

What benefits are exempt from taxable income under s10(1)(n)

Answer 13

Fringe Benefits:
- Uniform allowance
- Relocation/transfer costs
- EE share schemes

Question 14

S10(1)(nA) - Uniform allowance

Exemption?

Answer 14

Uniform given to EE by ER/any allowance for uniform = 100% exempt.

• Must be as a condition of employment
• Must be clearly distinguishable from
  ordinary clothing

Question 15

S10(1)(nB) - Relocation/Transfer costs

Exemption?

Answer 15

100% exempt

If EE is:
- Appointed, or
- Transferred, or
- Dismissed,
and moves @ insistence of his ER & ER
bears the cost, amount expended will not
be taxed in EE hands.

The transfer must involve a change in residence for the EE.

Question 16

S10(1)(nC), (nD), (nE) - EE share scheme

Exemption?

Answer 16

100% exempts the following:

• Receipt of quality equity shares
• Receipt of equity instrument not yet
  vested in EE
• Receipt of proceeds on disposal of equity
  instrument which is not yet vested in EE
• Amount received on cancellation of share
  scheme purch. transaction/on repurch. of
  shares acquired under that scheme -
  provided EE is only refunded what he
  actually pd for shares/options

Question 17

S10(1)(o)(ii) -Persons employed outside the republic.

Exemption?

Answer 17

Any remuneration received by/accrued to a person if it is iro services rendered outside the R for/on behalf of any ER provided the person was outside the R:

• For period/periods > 183 full days in
  aggregate during any 12-month period
  (for Covid-19 = period/periods > 117 full
  days in aggregate during any 12-month
  period btw 29/2/2020 - 28/2/2021), &
• For a continuous period > 60 full days
  during such period of 12 months, &
• Such services were rendered during such period outside the R
• Exemption is limited to the first R1,25 mil of remuneration, excess of this is taxable

Question 18

S10(1)(o)(ii) -Persons employed outside the republic.

Exemption - additional notes?

Answer 18

• Self-employed (independent contractors) may not claim exemption u under this section
• Pmt must merely relate to work done outside R.
• These provisions do not apply to government EE.
• Services do not need to be rendered during the whole time the EE is outside the R as long as he is in employment during that time
• A person who is in transit through R btw 2 places outside R & who does not formally enter R through a port of entry shall be deemed to be outside the R

Question 19

Define Remuneration

Answer 19

Salary, leave pay, wage, overtime pay, bonus, gratuity, commission, fee, emolument, allowance, pension, Superannuation allowance, retiring allowance, cash/otherwise.

Question 20

S10(1)(q) - Bursaries & Scholarships

Exemption?

Answer 20

100% exempt = Any bona fide scholarship/bursary granted to assist/enable a person to study @ recog, institution.

Question 21

S10(1)(q) - Bursaries & Scholarships

Additional rules that apply if granted by ER to EE/relative s10(1)(q).

Answer 21

• ER to EE = EE must agree to reimburse ER
  if EE fails to complete studies for reasons
  other than death, ill-health/injury of EE.
• No monetary limit of bona fide bursaries
  given to EE
• In case of relatives of EE, exemption is
  limited to:
  
  • R20 000 p.a = GR R-12 (NQF 1-4)
  • R60 000 p.a = NQF 5-10
  • Provided that EE remuneration does not
    exceed R600 000 for any YoA prior to
    current year.
• If EE only worked for ER part of preceding year/only started working for EE in current year, remuneration proxy must be calculated and used where applicable.
• On/after 1/3/2021 - exemption does not apply if EE reduces/forfeits any remuneration(past/future) in return for grant of scholarship/bursary.

Question 22

S10(1)(q) - Bursaries & Scholarships

Additional rules that apply if granted by ER to EE/relative ito s10(1)(qA) - EE relatives with disabilities

Answer 22

• In case of disabled persons related to EE:
  
  • R30 000 p.a = GR R-12 (NQF 1-4)
  • R90 000 p.a = NQF 5-10
  • Provided that EE remuneration proxy
    does not exceed R600 000 for any YoA
    prior to current year.
• If EE only worked for ER part of preceding year/only started working for EE in current year, remuneration proxy must be calculated and used where applicable.
• On/after 1/3/2021 - exemption does not apply if EE reduces/forfeits any remuneration(past/future) in return for grant of scholarship/bursary.