How the current study bursary exemption works

The requirements of section 10(1)(q) of the Income Tax Act have remain unchanged. This means the following requirements have to be met in order for a bursary or scholarship to qualify for this new exemption:

• The scholarship or bursary must be a bona fide scholarship or bursary.
• It must be granted to enable or assist a person to study.
• The student or learner must study at a recognised educational or research institution.

A distinction must be made between a bursary granted to the employee and one granted to his or her relative. In the case of employees, the success or failure of their studies will determine the taxability of the bursary. If the studies are successfully completed, there are no adverse tax consequences. Also, as long as these employees agree to reimburse the employer if they fail to complete their studies (except if due to death, ill health or injury), the bursary is exempt. In short, good academic results lead to career and tax benefits!

Where the bursary is awarded to a relative of the employee, the exemption is determined by the employee’s remuneration in the previous year of assessment, i.e. the ‘remuneration proxy’. If this remuneration proxy exceeds R600 000 for the 2018 year of assessment, the bursary does not qualify for exemption.

For a remuneration proxy of up to R600 000, the exemption depends on the level of the qualification. For school studies or a qualification from a National Qualification Framework (NQF) level 1 to 4, the exemption amount is R20 000. For NQF level 5 to 10 (doctorate), the exemption increases to R60 000.

Figure 1: The different bursary exemption categories and requirements

The remuneration proxy should exclude the cash value of employer-provided accommodation as set out in the Act. Here, SARS Interpretation Note No 66 gives guidelines on the taxation of scholarships and bursaries. When counselling clients on negotiating with their employers, it is advisable to first consult this Interpretation Note. This is especially true when weighing the merits of loans, reimbursements and bursaries as each has its own tax consequences.

The tax treatment of these amounts should also be considered from the employer’s perspective. For example, the employer might prefer a learnership agreement, which could lead to tax deductions for the employer.

How the new ‘disability’ study bursary exemption section works

As from 1 March 2018, the new section 10(1)(qB) applies where an employer grants a bursary to a disabled employee, or to a disabled relative of an employee who is taking care of this relative. In this context, “disability” means a moderate to severe limitation of any person’s ability to function or perform daily activities as a result of a physical, sensory, communication, intellectual or mental impairment if the limitation has lasted or has a prognosis of lasting more than a year, and if it is diagnosed in the way prescribed by the Commissioner.

Prior to the introduction of this section, such a bursary qualified for an exemption under section 10(1)(q). The only difference now is that bursaries granted to a disabled relative of an employee qualify for greater exemption amounts. The remuneration proxy is the same at R600 000. However, for school and NQF level 1 to 4 studies, the exemption increases from R20 000 to R30 000. For NQF level 5 to 10, the exemption has been increased from R60 000 to R90 000.

It is suggested that financial advisers consult the SARS document titled List of qualifying physical impairment or disability expenditure.

What does the future hold for the funding of education?

On 16 December 2017, President (at the time) Zuma announced that the government would introduce full subsides, free higher education and training for poor and working-class undergraduate students. Widely regarded as an opportunistic ploy to win votes for his preferred candidate for the ANC presidency, it disregards the findings of the Heher Commission and puts universities under further pressure. Moreover, the Minister of Finance was caught unawares, and will have to find other tax sources to fund the free education promise.

Let us hope that this does not impact negatively on the study bursary exemption, and other pro-education tax initiatives.

• Original article: Steenkamp, L-A. (2018). While fees must fall, tax exemptions go up. Insurance and Tax Journal, 33(1).
• Dr Lee-Ann Steenkamp is a senior lecturer in Taxation, Financial Planning and Climate Change at the University of Stellenbosch Business School. She is also Head of USB’s Postgraduate Diploma in Financial Planning.