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Taxability of PhD study grant received from a USA university where research is conducted in RSA

Tuesday, 09 December 2014   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: Client received a doctoral fellowship grant for his PHD from a foreign (US) university. He was living in and conducting the research for his PHD in SA. Is the income received taxable? If it is can he deduct expenses that were incurred in conducting the research? 

A: We submit that article 20 of the RSA / USA treaty doesn’t apply.  Section 10(1)(q), however, exempts from normal tax "any bona fide scholarship or bursary granted to enable or assist any person to study at a recognised educational or research institution”.  Interpretation Note 66 (01 March 2012) deals with the current practice prevailing in this regard.  In paragraph 4.2 it explains as follows:

"The scholarship or bursary must be granted to study at a "recognised educational or research institution”. SARS will accept that an educational or research institution qualifies as "recognised” if that institution has been established by or registered under the laws of South Africa, for example the Higher Education Act, 1997, the Skills Development Act, 1998 or the National Research Foundation Act, 1998.

It will also be acceptable if a scholarship or bursary is granted to study at a foreign educational or research institution if the qualification obtained from that institution upon completion of such studies would be recognised by the South African Qualifications Authority under the National Qualifications Framework Act, 2008.

In cases where the educational or research institution does not fall into one of the above categories, the local SARS office should be approached for confirmation whether or not the institution qualifies.”

So, if the "doctoral fellowship grant” meets the above criteria it will be exempt and no deduction is then permitted – section 23(f) of the Income Tax Act.  

Disclaimer: Nothing in this query and answer should be construed as constituting tax advice or a tax opinion. An expert should be consulted for advice based on the facts and circumstances of each transaction/case. Even though great care has been taken to ensure the accuracy of the answer, SAIT do not accept any responsibility for consequences of decisions taken based on this query and answer. It remains your own responsibility to consult the relevant primary resources when taking a decision.



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