Last week we talked gross income. Now let`s examine income exempt from tax.
Here`s our table. (For individuals who conduct their own businesses in their
own name.)
Total income - discussed
last week
Add Deemed income - last week
Equals Gross income
Subtract (Exempt Income) - this week
Equals Income
Subtract (Deductions and Allowances) - next week
Equals Taxable income
Tax on taxable income using
tax tables - week after next
Less (Rebates from the tax
calculated)
Less (SITE & PAYE & provisional
tax paid previously)
Tax liability or refund
Here`s how to calculate the exempt income, which you deduct from gross
income. Each type of income is treated separately.
IF YOU EARN EMPLOYMENT INCOME
Employment income is money you earn from your employer, including pension
and annuities.
Here, exempt income includes:
- Special payments
If you are a male salary earner older than 55 or a female salary earner
older than 50, and you are paid money by your employer as a result of
illness or because your employer has stopped conducting the business, you
can deduct R30 000 from your gross income.
This excludes pension, provident or retirement funds money.
This R30 000 is available once in a lifetime. If you are retrenched and you
move to another employer, who also retrenches you, whatever you have already
used of the R30 000 cannot be used again.
- Restraint of trade pay-outs
This is money paid by your employer to you when you undertake not to compete
with the employer`s business once you leave that job.
- Re-imbursive payouts
If you incur expenses, such as telephone bills, and the employer repays you,
that repayment is exempt.
- Bursaries
Bursaries from your employer are exempt, if your salary is not reduced by
that amount, and if and your child studies at a recognised institution.
If it`s a relative being given a bursary, you can only exempt the first R1
600 for each relative - and then only if you are earning less than R50 000 a
year.
- Uniform allowance
If you are required to wear a uniform, you can exempt its cost.
There are other types of exempt income, more of which next time.
IF YOU EARN INVESTMENT INCOME
This is the total you earn from interest, dividends and rentals. Here you
are allowed to deduct R2 000 from the interest income included in your
investment income.
All the dividend income included in your investment income is also exempt
here.
IF YOU EARN INCOME FROM A BUSINESS
Your gross income here is all income (cash and credit) you earned in the
businesses you conduct in your own name.
Here you can exempt money you win as a prize or from a bet. You can also
exempt gifts and donations or inheritances.
If your business receives interest as well, whatever you have not used from
the R2 000 exempt income under investments, you can use here, because this
business is an extension of yourself.
IF YOU EARN INCOME FROM TRUSTS
Your gross income here includes what you get as a beneficiary of a trust. If
the trust invests in shares (and receives dividends) and fixed deposits (and
receives interest), the income it gives you will also be dividends and
interest. But as far as interest goes, if you`ve used the R2 000 under the
investment or business sections, you cannot claim more exempt income. The R2
000 covers interest from all sources.