Bursaries and scholarships: The tax rules are changing

Over the past several years, many employers and employees have made use of the beneficial tax treatment of bursary and scholarship schemes, as provided for in the Income Tax Act. The Act contains provisions that provide an exemption in respect of bona fide bursaries or scholarships granted by employers to employees or relatives of qualifying employees, subject to certain monetary limits and requirements stipulated in the Act. Essentially, an employee is not taxed on an amount granted to him/her when it meets the criteria as set out in the Act.

In the case of a bona fide bursary or scholarship granted to a relative of the employee without a disability, the Act makes provision for the exemption from tax to apply only if the employee’s remuneration does not exceed R600 000 during the year of assessment. In addition, the amount of the bursary or scholarship will only be exempted up to a limit of R20 000 for studies from Grade R to 12, including qualifications at NQF levels 1 to 4, and R60 000 for qualifications at NQF levels 5 to 10. These levels are increased where the bursary or scholarship is made to a person with a disability.

National Treasury has noted that it has come to Government’s attention that a number of schemes have emerged in respect of employer bursaries granted to the employees or relatives of employees. These bursary schemes are developed by an institution other than the employer and marketed to the employer as a means of providing tax-exempt bursaries to their employees or relatives at no additional cost to the employer. These schemes seek to reclassify ordinary taxable remuneration received by the employee as a tax-exempt bursary granted to the relatives of employees. As a result, an employee can cater to their relative’s studies by way of salary sacrifice. The portion of the salary sacrificed by the employee is paid directly by the employer to the respective school and is treated as a tax-exempt bursary in the employee’s or relative’s hands.

It is proposed that the exemption, in respect of a bona fide bursary or scholarship granted by the employer to the relatives of the employee, should only apply if that bona fide bursary or scholarship granted by the employer is not restricted only to the relatives of the employee, but is an open bursary or scholarship available and provided to members of the general public. Furthermore, it is proposed that the requirement that the applicability of the exemption is dependent on the fact that the employee’s remuneration package is not subject to an element of salary sacrifice, be reinstated.

Lastly, it is proposed that, as a means of further encouraging employers to grant bursaries to relatives of employees without subjecting such bursary to an element of salary sacrifice, that the employer deduction in relation to said bursaries is only afforded if the bursary to the employee’s relative is not subject to an element of salary sacrifice.

The above proposals are currently open for public debate, and it is yet unclear whether the proposals will be enacted as is currently suggested. We expect the final bill which contained the proposals to be made available during November 2020.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your adviser for specific and detailed advice. Errors and omissions excepted (E&OE).




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IC Marais

Professional experience:

IC Marais is a certified CA (SA) with public sector and private sector technical knowledge based on 5 years’ Public Sector accounting, auditing and financial management experience and 5 years audit, tax and accounting experience. Detailed knowledge of private and public sector accounting and auditing standards (GRAP, IPSAS, IFRS, IAS, ISA) and public sector financial legislation (MFMA, etc.)

He enjoys the outdoors, hunting and fishing.



Professional experience:

In 1995, Schalk started as a trainee at Warner and Newton (which became Moores Rowland in 1997 and then Mazars Moores Rowland in 2007) in Bloemfontein. In 1998, Schalk was appointed as manager at Moores Rowland, where he became a partner in 2003. Schalk received his Postgraduate Certificate in Advanced Taxation in 2006 and in 2009 he received his Certificate in the Administration of Estates.



Professional experience:

Cedric started as a trainee at Warner and Newton (which became Moores Rowland in 1997 and Mazars Moores Rowland in 2007), Bloemfontein, in 1986. After completion of his articles, he joined the Special Investigations Division of the Department of Finance (SA Revenue Services) as a senior inspector from 1990 to 1991.



Professional experience:

Lucha started her career as a tax inspector at the Inland Revenue Department of New Zealand. After this she worked in commerce in Canada, Mexico and the United States.

On her return to South Africa, she completed her CA training contract with us and has been with Newtons ever since. She became a Partner in 2012.

Apart from her CA(SA) qualification she also holds a postgraduate certificate in Advanced Taxation (2005) and has the overall responsibility for training as our Training Officer.