Is a bursary tax deductible?
Important:
This answer is based on tax law for the tax year ending 28 February 2018.
Answer:
The following guidance is relevant to the issue of whether a deduction can be made.
The Tax Administration Act (not SARS) provides that the “taxpayer bears the burden of proving:
(a) that an amount, transaction, event or item is exempt or otherwise not taxable;
(b) that an amount or item is deductible …”
Judge Conradie in Warner Lambert (SA) v CSARS stated the law in this regard when he said “Deductible expenditure has certain characteristics: it must be incurred in the production of income (s 11(a)) and will not be allowed as a deduction against gross income if it is not laid out or expended for the purposes of trade.”
The crucial requirement of section 11(a) is that deductions are only allowed, for the purpose of determining the taxable income derived by any person from the income of that person derived from carrying on any trade.
Whilst the bursary may be of a capital nature for the individual concerned, it may well not be capital in nature for the company making the payment.
We agree that the ‘in the production of income’ requirement may prove problematic in this instance. It appears that the purpose is merely to assist the person, and there is no purpose that can be linked to the production of income (or closely connected).
Incidentally, the student receives the amount free from tax.