- Gross income exemptions through employer provided bursaries and scholarships
Paying school fees is often a cumbersome task, particularly if you provide financially for more than one learner. There is, however, some relief for parents and guardians.
The Income Tax Act1provides an exemption relating to a bona fide scholarship or bursary awarded to an employee or their relative to assist with the cost of study at a recognised education or research institution. Fred Wagenvoorde, a financial planner at Fiscal Private Client Services says, “This exemption is financially beneficial to both employees – through an exemption against their gross income; and employers – through tax-deductible expenses on the company’s income statement, provided that certain conditions are met.”
The conditions mentioned by Wagenvoorde include a contract that must be drawn up between the employer and employee setting out the terms and conditions of the bursary or scholarship. This will prove as evidence should the South African Revenue Service (SARS) request supporting documentation, he explains.
Some particulars that should be highlighted and not limited to, in the contract must include a repayment clause stipulating that the employee agrees to repay the bursary amounts provided if the employee or their relative fails to complete their studies for any reason other than death, ill-health or injury.
Secondly, the scholarship or bursary should not be provided through a salary sacrifice, nor is part of the cost-to-company package, i.e., the employee may not reduce their taxable income to accommodate the scholarship or bursary.
Wagenvoorde describes the amounts available for exemption:
SARS stipulates that if the employee’s annual gross remuneration is R600 000 or less, an exemption is available for:
- Grades R to 12 (or NQF levels 1 to 4) to a maximum of R20 000 for able-bodied learners and R30 000 for disabled learners, and
- Qualifications at tertiary level (NQF levels 5 to 10) to a maximum of R60 000 for able-bodied learners and R90 000 for disabled learners
Wagenvoorde adds, “These exemptions are available per person be it the employee or a relative of the employee, per tax assessment year. And the costs that may be covered by the scholarship or bursary include:
- Tuition fees
- Registration fees
- Examination fees
- Equipment (required for the field of study, for example, financial or scientific calculator)
- Accommodation (other than the employee’s home)
- Meals or meal vouchers/cards
- Transport (from residence to campus and vice versa)
This is good news for parents and guardians who need financial support to provide their children and dependents the best possible start in life, through a good education.”
Bringing to life the information, Wagenvoorde provides an example.
An employee earns an annual remuneration of R500 000 in the year of assessment. The employee has an able-bodied son in grade 10 and a disabled daughter who is in her third year of university. The employer has decided to make the following bursary payments related to the employee’s children:
- For the able-bodied son: R30 000
- For the disabled daughter: R60 000
Of the total bursary received (R90 000), the following will be exempt:
- Relating to the employee’s abled son1: R20 000. The excess of R10 000 will be included in the employee’s taxable income.
- Relating to the employee’s disabled daughter1: R60 000
Therefore, R90 000 will be included in the gross income amount and R80 000 will be exempt1.
The act of an employer awarding bursaries for tuition can amount to significant current and future benefits not only for the employee and/or their relatives, but for the employer too. “This is great news for most parents or guardians who will pay tuition fees at some point. Our advice at Fiscal, is to approach your employer, and discuss this exemption,” Concludes Wagenvoorde. The last piece of advice is to always consult a tax professional for more information.
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- Specifically in terms of sections 10(1)(q) and 10(1)(qA).