A case study review and reasonability assessment of the foreign employment income tax exemption threshold in section 10(1)(o)(ii) of the Income Tax Act

Abstract

This research paper, by means of a case study, evaluated whether the foreign employment income tax exemption threshold in section 10(1)(o)(ii) of the Income Tax Act achieved its objectives: first, limiting the impact of the amendment to the exemption in respect of South African tax residents earning low or moderate levels of remuneration in either the United Arab Emirates (low-income tax rate jurisdiction) or the United Kingdom (high-income tax rate jurisdiction); and, second, spared tax residents earning remuneration in the United Kingdom of making additional ‘top-up’ tax payments to the South African Revenue Service. The case study assessed the tax position of a South African tax resident earning low, moderate or high levels of foreign remuneration in either the United Arab Emirates or United Kingdom, based on three mutually exclusive assumptions: first, had the full exemption continued to apply (as was effective on 29 February 2020); second, had the exemption threshold applied (effective from 1 March 2020, in terms of the 2020 Budget Review; not yet legislated at the time of writing the research paper); and, third, had the exemption, in full, been repealed (as proposed in terms of the Draft Taxation Laws Amendment Bill of 2017). The reasonability of the current threshold value was assessed by comparing it to the minimum threshold value required to achieve a break-even tax position in the Republic.