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Do bursaries to relatives of employees still hold a tax benefit?

This article is based on tax law for the year ending 28 February 2022.

Sections 10(1)(q) and (qA) provide for an exemption when a qualifying bona fide bursary is provided to relatives of employees.   This exemption could be very beneficial to employees, provided that it is structured properly.

So how does the exemptions work?

Section 10(1)(q) determines that if the employee’s remuneration proxy[i] is R600 000 or less, an exemption of  a maximum of R20 000 is available for education at Grades R to 12 (or NQF levels 1 to 4) and an exemption of a maximum of R60 000 for qualifications at NQF levels 5 to 10.  It is recognised that the education of a disabled learner exceeds that of an able-bodied learner.  Therefore, section 10(1)(qA)  determines that if the employee’s remuneration proxy is R600 000 or less, an exemption of  a maximum of R30 000 is available for education at Grades R to 12 (or NQF levels 1 to 4) and an exemption of a maximum of R90 000 for qualifications at NQF levels 5 to 10 in the case of a bursary provided to a disabled learner.

It is interesting to note that these exemptions are available per bursary.  In other words, per relative per year of assessment.

Let’s use the following as an example:

Employee A earned remuneration of R500 000 in the previous year of assessment (earned for the full 12 months). Employee A’s disabled son in in Grade 4 and his able-bodied daughter is studying towards her B Com degree. Employee A’s employer makes the following bursary payments to him:

  • Related to his disabled son: R50 000
  • Related to his able-bodied daughter: R50 000

Of the bursary received of R110 000, the following will be exempt:

  • Related to his disabled son: R30 000 in terms of section 10(1)(qA)
  • Related to his able-bodied daughter: R60 000 in terms of section 10(1)(q).  However, this is limited to the bursary received of R50 000 (excess is not carried forward to the following year of assessment.

Therefore, R100 000 will be included in gross income and R80 000 will be exempted in terms of sections 10(1)(q) and 10(1)(qA).

The 220 budget speech made mention of these sections and indicated that alleged abusive schemes will be investigated and addressed.  This was raised again in the 2021 budget speech and an amendment proposed.  With effect from 1 March 2021, the exemption for scholarships and bursaries provided to relatives of employees is not available if any remuneration to which the employee was entitled or might in the future have become entitled was in any manner whatsoever reduced or forfeited because of the grant of such scholarship or bursary.  It is very clear that the structuring of these bursary schemes is crucial and that if structured as a salary sacrifice, the exemption will not be available and the bursary pay-outs will be fully taxable in the hands of the employee.

[i] Remuneration proxy refers to the employee’s remuneration for the last year of assessment, grossed up as an annual value if the employee did not work for the full year

Webinar Commentary

For an update on the latest legislative amendments and court rulings access our Budget and Tax Update 2021 presented by Prof Jackie Arendse here.

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