Section 10(1)(e) of the Income Tax Act 58 of 1962 (the ITA) exempts levy income received by bodies corporate, share block companies and certain voluntary associations from normal tax. SARS released Issue 5 of Interpretation Note 64 in December 2025. The expanded note is substantially longer than the previous Issue 4. It addresses several aspects of the exemption not previously spelt out in guidance, particularly for voluntary homeowners’ associations. This article discusses the exemption and highlights some guidance from the revised interpretation note.

Rationale for the exemption

A body corporate, share block company, or voluntary homeowners’ association is a “company”, as defined in the ITA. They are, therefore, persons for purposes of the ITA. Any amount it receives, including levies, would, on normal principles, arguably fall within its gross income and be taxable. Section 10(1)(e) provides an exemption for some levies that accrue to these entities.

Conceptually, the exemption reflects the fact that these entities operate as pooling vehicles. Members would otherwise have spent the funds directly on their shared property. However, with the entity being a separate taxpayer, a tax-neutral outcome would not always exist in the absence of the exemption. Some capital expenditure on items such as fencing, paving and a guard house may not be deductible, while the levy income from which it is funded would be. It could also be debatable whether the entity is engaged in a trade and can deduct its expenditure under section 11(a). Even if it were accepted that it trades, a timing mismatch between levies collected and amounts spent in a year could still produce surpluses in some years, on which tax would be payable. Exempting levy income removes these distortions.

Three categories of entity

Section 10(1)(e) covers three categories: bodies corporate, share block companies and associations of persons that meet the requirements in paragraph (cc). Bodies corporate and share block companies are governed by separate regulatory legislation, and the exemption applies to them automatically. A voluntary association, like a homeowners’ or residents’ association, is a contractual arrangement among residents and falls outside that regulatory regime. Whether it meets the requirements of paragraph (cc) and can apply for exemption depends on how the parties have set up the contractual arrangement. 

The exemption

If an entity qualifies for the exemption, levy income is fully exempt. The interpretation note provides substantial guidance on what constitutes levies. Non-levy income is subject to a limited exemption. Where a portion of non-levy income is exempt, deduction apportionment applies.

The application requirement

Issue 5 clarifies SARS’s position on the application process. A reading of section 7 of the interpretation note alone might suggest that applying to the SARS Tax Exemption Unit (TEU) is good practice. However, section 13 makes the SARS position clear: a voluntary association must apply for exemption. The Commissioner must be satisfied that the purpose of the association is to manage the collective interests in immovable properties of its members, that distributions are prohibited, and that the entity does not engage in tax avoidance. SARS issues a confirmation letter with a unique reference number upon approval of an application.

Retrospective exemption

The revised interpretation note addresses the question of retrospective exemption. The guidance indicates that the Commissioner can backdate the exemption where the association can prove that it met all the requirements during the earlier periods and that supporting documentation existed at the relevant time. Retrospective approval is subject to the three-year prescription limit in section 99 of the Tax Administration Act 28 of 2011. The prescription period runs from the return filing date. This means the position may well differ depending on whether the entity previously filed returns. This possibility of retrospective exemption gives non-compliant associations a route to rectify their position. 

More on this topic

For more on this topic, you can listen to Episode 75 of my podcast, Tax Break, where I discuss the exemption and the interpretation note at the link below: