Automatically exempt from income tax or not?  That is the question.

Section 10(1)(e) exempts from income tax the levy income of a body corporate, a share block company and an association of persons.  It also provides an exemption for these entities of an amount up to a maximum of R50 000 for all their receipts and accruals other than levy income (the basic exemption).

Section 10(1)(e) of the Income Tax Act 58 of 1962 (The IT Act) must be read with interpretation note 64 (Issue 4).

It is important to note the differences between a Body corporate, share block company and an association of persons (e.g. Home owners association).

  • Body Corporate:
    The Sectional Titles Act provides for separate ownership of a unit in a development scheme.  Generally, the buildings and land of the development scheme are divided into sections and common property.A unit refers to a particular section and an undivided share in the common property associated with that section.  A body corporate is established to take responsibility for the enforcement of Rules and for the control, administration and management of the common property for the benefit of all owners.Membership of the body corporate is compulsory and is linked to ownership in the development scheme.  The members are required to contribute levies to meet the costs of the common property.A body corporate is a qualifying entity under section 10(1)(e)(i)(aa).
  • Share block company:
    The main object of a share block company is to operate a share block scheme in respect of immovable property owned by it.A shareholder that owns a share in a share block company acquires the right of use and occupation of a specific unit or portion of the immovable property owned by the company.  The shareholder does not become the owner of the specific part of the immovable property.A share block company must establish a compulsory levy fund to which the shareholders must contribute.  The levy fund is used to defray expenditure relating to the repairs, upkeep, control and management and administration of the company and of the immovable property for which it operates the share block scheme as well as the payment of rates and other local authority charges for services.  On disposal of a share, the new member automatically becomes a contributor to the levy fund.A share block company is a qualifying entity under section 10(1)(e)(i)(bb).
  • Association of persons:
    An association of persons includes the following:

    • a “non-profit company” as defined in section 1 of the Companies Act; and
    • a voluntary association of members founded on a basis of mutual agreement whose intent and objectives are usually set out in a formal founding document.

The Commissioner must be satisfied that the association of persons –

  • has been formed solely for purposes of managing the collective interests common to members, which includes expenditure applicable to the common immovable property of such members and the collection of levies for which such members are liable; and
  • is not permitted to distribute any of its funds to any person other than a similar association of persons.

The Commissioner may prescribe conditions applicable to associations of persons in addition to those listed above.

An association of persons that satisfies these requirements is a qualifying entity under section 10(1)(e)(i)(cc).

A “company” as defined in the Companies Act (other than a non-profit company), any co-operative, close corporation and trust are specifically excluded as associations of persons and do not qualify for the exemption under section 10(1)(e).

An association of persons may include home owners’ associations, and associations formed to control and manage the maintenance, security or appearance of the immovable property common to the members.  These associations of persons take responsibility for the collection of levies and payment of expenditure for the common immovable property.

Membership of the association of persons is linked to the ownership or occupation of a particular unit or portion of the property.  Members may include residents or owners of a particular residential area such as security estates, complexes or gated communities or tenants of a shopping centre or mall.

Application for exemption:
The following is the most significant difference between exemption in terms of section 10(1)(e)(i)(aa) and (bb) and section 10(1)(e)(i)(cc).

  • Body corporate and share block companies (section 10(1)(e)(i)(aa) and (bb)):
    A body corporate or share block company is not required to apply for exemption under section 10(1)(e)(i)(aa) or (bb) respectively.
    These entities are NOT registered at the TAX Exemption Unit for income tax, but are required to register at a SARS branch office and submit annual income tax returns even if they are unlikely to have an income tax liability.
    The levy income exemption and the basic exemption (R50 000.00) are automatically applied on assessment.
Tax return (ITR14) information:
  • Association of persons (i.e. Home owners association) (section 10(1)(e)(i)(cc)):
    An association of persons must lodge an application with the Commissioner at the Tax Exemption Unit to qualify for exemption from income tax under section 10(1)(e)(i)(cc).It will be determined whether the association of persons meet the requirements.  Additional conditions may be prescribed by the Commissioner.Only when the association is in possession of the written approval from TEU will:
  1. the levy income be exempt from income tax in terms of section 10(1)(e)(i)(cc)); and
  2. the association qualify for the R50 000 basic exemption to be applied against the other income (excluding levy income).

The application for exemption cannot be back dated as the Income Tax does not allow for it.

IT12EI must be completed annually and submitted to the TEU.

An association of persons will be fully taxable on all its receipts and accruals in the absence of approval by the Commissioner.

For more in-depth details in this regard, please visit the SARS website or contact our Tax Compliance Department (by sending an email with your query to for assistance.

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