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,” says Rob Cooper, a Payroll tax expert at Softline VIP, part of the Sage Group plc.
Scholarship and Bursary Taxation
“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,” explains Cooper. “Open bursaries are not taxable and provide a positive way for companies to make a difference to the South African skills shortage by providing the means for individuals who are not currently employed to gain qualifications and skills,” says Cooper.
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 fail to complete or pass his 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:
1. 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.
2. 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.
3. 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,” explains Cooper.
From March 2012, the exempt portion of the bursary amount must 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 maximize the impact of their tax deductible contributions,” concludes Cooper.
About Softline VIP
Softline VIP is a leading supplier of payroll and human resource management solutions in South Africa, Namibia and Botswana. Coupled with an extensive service offering, Softline VIP is the only payroll and HR solution geared to meet the challenges of the modern payroll office. The VIP Products are synonymous with ease of use, stability and reliability, with the flexibility to cater to the unique needs of every client. VIP promises long-term sustainability over and above legislative compliance. VIP understands the Human Resources and Payroll environment and offers the client peace of mind by providing a total solution.
Softline is a leading provider of business software and related services. Founded in 1988 by Ivan Epstein, Alan Osrin and Steven Cohen, Softline was established during the formative years of the business software industry. Whilst Softline’s heritage is in the SME market the group also offers expertise and solutions that meet the needs of specific industries and larger organisations. In 2003 Softline was acquired by The Sage Group plc, a FTSE 100 company. Softline has a solid track record offering customers local expertise backed by the global Sage brand. The group delivers quality software solutions to make customers’ business lives easier.
About The Sage Group plc
The Sage Group plc is a leading global supplier of business management software and related products and services, principally for small to medium-sized enterprises. Formed in 1981, Sage was floated on the London Stock Exchange in 1989. Sage has 6.3 million customers and 13,600 employees worldwide. We operate in over 24 countries covering the UK, Europe, North America, South Africa, Australia, India and China. For further information please visit www.sage.com.