By Rob Cooper, a Payroll Tax Expert at Softline VIP
Bursaries and scholarships increase value for employers and employees by improving overall skills levels. The South African 2012-2013 Budget made changes to the legislation regarding the taxation of bursaries and scholarships. Bursaries are generally employer deductible and potentially tax free to an employee or their relative.
Bursaries granted by companies can be divided into two groups: Open bursaries are granted to individuals who are not company employees, and closed bursaries are granted to employees or relatives of employees. Open bursaries are not taxable and provide a positive way for companies to make a difference to South Africa’s skills shortage by providing the means for individuals who are not currently employed to gain qualifications and skills.
Closed bursaries, granted to individuals who are employees, or a relative of an employee, can be tax free, partially taxed or fully taxed depending on the bursary amount and the employee’s annual remuneration amount. A closed bursary granted to an employee is exempt from tax if the employee agrees to repay the bursary amount should he/she fail to complete or pass their studies for any reason other than death, illness or injury.
According to the legislation, closed bursaries granted to a relative of an employee are taxable if the employee’s remuneration exceeds R100 000 and if the bursary value exceeds R10 000. To explain:
- If the employee earns less than R100 000 a year, and the bursary amount is R8 000, then the entire amount is exempt from tax.
- If the bursary is worth R12 000, then R10 000 of that amount is exempt from taxation while the additional R 2 000 is taxable.
- If the employee earns more than R100 000 annually, all bursaries or scholarships are taxable.
To calculate the R100 000 limit, the entire income amount must be used and must not be ‘fourth schedule remuneration’. For example, the income must also include the employee’s full travel allowance. If remuneration exceeds R100 000 after the bursary is paid, then the untaxed portion of the bursary must be taxed.
From March 2012, the exempt portion of the bursary amount needed to be reported against a new code 3815, and the taxable portion of the bursary as code 3809, which has been re-activated. This enables SARS to see the total value of the bursary on the employee’s tax certificate.
A bona fide bursary may include the costs of tuition fees, registration fees, examination fees, books, equipment required, accommodation, meals or meal vouchers and transport.
The South African legislation regarding the taxation of bursaries and scholarships supports local companies that want to make a positive impact on the South African skills shortage and decrease poverty levels by providing both employees and non-employees with opportunities to study and gain valuable skills. This is an avenue that companies should understand and pursue in order to maximise the impact of their tax deductible contributions.