BURSARIES AND SCHOLARSHIPS GRANTED TO EMPLOYEES AND RELATIVES

 2019-09-18 04:14 PM by

With the ever-increasing cost of living, annual remuneration increases may not always be sufficient to increase employees’ buying power. One other mechanism that employers can use to assist their employees, is by granting employees bursaries or scholarships for educational expenditure. If an employer grants a bursary or scholarship to a qualifying employee or a relative of such employee, the bursary or scholarship may possibly be exempt from normal income tax in terms of sections 10(1)(q) and 10(1)(qA) of the Income Tax Act.

 

The requirements

For a bursary or scholarship to qualify for the exemption provided for in sections 10(1)(q) and 10(1)(qA) of the Income Tax Act, the bursary or scholarship should:

  • Be Bona fide;
  • Assist a person to study at any recognised educational or research institution; and
  • Be granted to an employee or a relative of such employee.

 

Furthermore, the employee:

  • Should be required to reimburse the bursary or scholarship where the employee fails to complete his/her studies, other than as a result of death, ill health or injury; and
  • With respect to bursaries or scholarships granted to relatives, should not have earned more than R600 000 in the year of assessment preceding the year in which the scholarship or bursary is granted.

 

The benefit

Where a qualifying bursary or scholarship is granted to an employee, the full amount will be exempt from normal income tax. Where the qualifying bursary or scholarship is granted to a relative of a qualifying employee, the exempt amount would depend on the qualification level being funded, as well as whether or not the relative is considered to be a person with a disability.

Where a qualifying bursary or scholarship is granted to a relative of a qualifying employee and the bursary or scholarship relates to:

  • Grade R to grade twelve or a qualification from NQF levels 1 – 4, R20 000 of the bursary or scholarship will be exempt from normal income tax. Where the relative is considered to be a person with a disability, the exempt amount is increased to R30 000;
  • A qualification from NQF levels 5 – 10, R60 000 of the bursary or scholarship will be exempt from normal income tax. Where the relative is considered to be a person with a disability, the exempt amount is increased to R90 000.

 

The exemption applies to each qualifying bursary or scholarship granted to a relative of a qualifying employee. For example, where two qualifying scholarships are granted to a qualifying employee with two school-going children without disabilities, R40 000 of these scholarships will be exempt from normal income tax.

For more guidance on how such amounts should be treated for PAYE purposes, please refer to the SARS Guide for Employers in respect of Employees.

 

CONTACT US if you need assistance with the corporate tax implications of bursaries and scholarships granted to employees or any other matter relating to corporate tax compliance.