Can an owner of a business claim the R20 000 bursary or scholarship tax benefit for his own children? If so how would this show on the payroll?
Important:
This answer is based on tax law for the tax year ending 28 February 2018.
Answer:
We accept that you require guidance on the exemption from normal tax in section 10(1)(q) of the Income Tax Act. We also accept that the request relates to the 2018 year of assessment.
We submit that the tax consequences may be different when the “owner of a business” conducts the business as a sole trader. In that instance the expense, of providing the study assistance may well be a private expense and as such, section 23(a) would prohibit the deduction. If the taxpayer conducts it by way of a company, it may well constitute a dividend. If not, the following is appropriate:
The current remuneration of the employee is not relevant. It is the remuneration proxy that is relevant – see section 10(1)(q). From the information provided it is likely that she falls below the R400 000 for the 2016 year of assessment.
The exemption under section 10(1)(q) does not apply in the case of a scholarship or bursary granted to enable or assist any such relative of an employee so to study:
(aa) if the remuneration proxy derived by the employee in relation to a year of assessment exceeded R600 000; and
(bb) to so much of any scholarship or bursary contemplated in this subparagraph as in the case of any such relative, during the year of assessment, exceeds-
(A) R20 000 in respect of –
(AA) grade R to grade twelve as contemplated in the definition of ‘school’ in section 1 of the South African Schools Act, 1996 (Act No. 84 of 1996); or
(BB) a qualification to which an NQF level from 1 up to and including 4 has been allocated in accordance with Chapter 2 of the National Qualifications Framework Act, 2008 (Act No. 67 of 2008); and
(B) R40 000 in respect of a qualification to which an NQF level from 5 up to and including 10 has been allocated in accordance with Chapter 2 of the National Qualifications Framework Act, 2008 (Act No. 67 of 2008);
We accept that you referred to the exemption, for grade R to twelve, which has a R20 000 limit. The current practice generally prevailing is that it is the “first R20 000 of a scholarship or bursary awarded during the year of assessment, where the remuneration derived by the employee during the year of assessment does not exceed R600 000,” that is exempt from normal tax in the hands of the employee. This accords with the wording in section 10(1)(q)(ii) – the exemption ‘… shall not apply … to so much of any … bursary … as … exceeds …”
That of course is only available if the “owner of a business” is an employee. We don’t have enough information to comment about that, but it may well not be so.