Five times where you don't pay tax
Insurance policy pay-out, alimony and maintenance are among other types of income not taxed
Did you know that an insurance policy pay-out and alimony and maintenance among other types of income are not taxed in the hands of the recipient? It is prudent to be aware of these types of income should you find yourself in a situation where you’re a receiver of such income.
Here we’ll deal with pay-outs from the Unemployment Insurance Fund (UIF), insurance policies, workmen's compensation, death pay-outs by an employer and alimony or maintenance.
Any payment that you receive from the UIF is tax-free. This includes a pay-out as a result of being without a job or because of maternity leave. If you have taken maternity leave and are planning on or have received a payment from the UIF, you will not pay tax on this income.
Many people have insurance for various possibilities that may eventuate. Common examples include disability, death, illness or unemployment (separate from UIF – this is a private insurance policy). If you have an insurance policy and it pays out for one of the above circumstances, the pay-out received will be exempt from taxation in your hands.
This exemption is not applicable if the pay-out is paid or payable by a retirement fund.
If you, as an employee, are injured, disabled, killed or become ill during the course of your duties you are entitled (under certain circumstances) to compensation. This is generally dealt with in terms of the Compensation for Occupational Injuries and Diseases Act. Any pay-out that you receive from the Compensation Fund is exempt from taxation in your hands.
It must be noted that if you are totally or partially disabled for less than three days, you are a domestic worker, or you are guilty of willful misconduct (among other things) then you are not entitled to a pay-out from the Compensation Fund.
A claim must be submitted by your employer to the Compensation Commissioner within seven of days of the injury or 14 days of being diagnosed with a disease.
Death benefit paid by employer
If you die as a result of and in the course of your employment, your employer may decide to pay a death benefit to your surviving family members. This pay-out is exempt from taxation up to a limit of R300 000; any amount over that is subject to normal taxation. The amount paid by the employer to the family is deemed to be received by the deceased immediately prior to his or her death.
Alimony or maintenance
Any money that is received from your spouse or former spouse by way of alimony, allowance or maintenance in terms of a judicial order of separation or divorce is exempt from taxation.
It is important to be aware of the tax implications of receiving income from any of the above five sources in case any of them apply to you at some point in your life. While these amounts received are exempt from taxation, they should still be declared on your ITR12 that you submit to SARS.
* Baines is a tax consultant at Mazars and the author of 'How to Get a SARS Refund'.