I have a client who is a connected person of a CC. She was informed that the CC can pay her a bursary for her child's school fees according to Section 10(1)(q). There are attorneys that are advising taxpayers that school fees (including fees for private s
Important:
This answer is based on tax law for the tax year ending 28 February 2019.
Answer:
In this instance we accept that the individual is an employee of the company, the close corporation, and that the benefit is not granted in respect of the interest held in the company. Because of the reference to a deduction, we also accept that the bursary will be given to the relative, subject to the limitations contained in section 10(1)(q), in respect of the services rendered by the member to the close corporation.
You must consider the following in arriving at an opinion or tax position for your client.
The Tax Administration Act provides that the “taxpayer bears the burden of proving that an amount, transaction, event or item is exempt …” – section 102(1)(a).
You should then read the following case: Judge Cachalia in Anglo Platinum Management Services v SARS, said that it was SARS’s view that “salary sacrifice arrangements, whereby employees sacrifice or forego a portion of their cash salaries in return for some quid pro quo or fringe benefit from the employer that reduces their tax liability, are perfectly lawful.”
So, in principle there is nothing wrong with restructuring, but it must be done in a valid way – agreed on by the employer and the employee (in the contract of employment). With regard to Judge Cachalia’s comments relevant to the main Act, so to speak, and paragraph (i) (Seventh Schedule) some comments. It was relevant in the court case because the benefit fell within the ambit of paragraph (i) of the definition of gross income. The point the Judge wanted to make was that “the proviso in para (c) precludes any benefit, in respect of which the provisions of para (i) apply, from being dealt with as having been received or accrued for services in respect of any employment under para (c).”
With a section 10(1)(q) amount, the benefit doesn’t come into the Seventh Schedule or paragraph (i). The principle may however still apply.
We don’t comment on the abuse of the exemption. Because there is a tax benefit, the taxpayer will have to be able to rebut the presumption of purpose – see section 80G of the Act.