An exemption is a rule that takes something out of the tax net. It can apply to an amount of income, to a type of payment, or to a whole category of employer or employee that would otherwise be liable.
What it means
Exemptions are how the law carves out exceptions to a general charge. A portion of foreign-employment income can be exempt from tax; a small employer is exempt from the Skills Development Levy; certain employees are excluded from UIF. An exemption is different from a deduction - it removes the amount entirely, rather than subtracting it from a base.
Where it fits in
Payroll has to apply each exemption in the right place: SDL exemption stops the levy being raised at all, a UIF exclusion stops the contribution, a foreign-income exemption removes qualifying pay from the PAYE base. Misapplying one either over-taxes the employee or under-declares to SARS.
Key rules
- Removes an amount, payment or party from a tax or charge entirely.
- Distinct from a deduction, which reduces a base rather than removing it.
- Examples: SDL exemption for small employers, UIF exclusions, foreign-income exemption.
- Must be applied at the correct point so the charge is never raised on the exempt amount.
