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Taxing Bursaries And Scholarships

Tuesday, 01 May 2012   (0 Comments)
Posted by: Author: Rob Cooper
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Taxing Bursaries And Scholarships

Bursaries and scholarships increase value for employers and employees by improving overall skills levels.The 2012 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 the South African 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 they 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 per annum, and if the bursary value exceeds R10 000.For example:
•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,not just that defined as ‘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 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.

Source: By Rob Cooper (Tax breaks)




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