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.
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