Any bona fide bursary or scholarship granted to enable or assist any person to study at a recognised educational or research institution may be exempt from income tax, provided that it meets the criteria as set out by SARS. More information can be found in SARS’ Guide for Employers in respect of Employees Tax here and SARS’ Interpretation Note 66 here. If it does not meet the criteria set by SARS, it is considered a taxable fringe benefit.
Please note: The remuneration threshold stated in Note 66 is no longer accurate. In May 2021 the remuneration threshold currently stands at R600 000.
SimplePay has a built-in system item to accommodate the special tax and reporting requirements of a bursary or scholarship, whether paid once off or over a specified period.
Once-off
Amounts paid under the bursary and scholarships item can be paid in one lump sum to the employee or directly to the educational institution. All amounts paid that fall below the specified annual limits can be designated as exempt when setting up this item.
To add the item:
- Go to Employees on the left-hand menu and select the relevant employee.
- Click Add next to Payslip Inputs.
- Select Bursaries And Scholarships under Benefits.
- Enter the Taxable Portion and / or Exempt Portion of the bursary or scholarship.
- Select the Employee handles the payment checkbox if relevant. Please note: Selecting this checkbox will add an allowance item to the employee’s payslip. This item will not influence PAYE.
- Select the type of study from the dropdown menu:
“Basic Education (Grade R to 12 and NQF levels 1 to 4) Education” or
“Further Education (NQF levels 5 to 10)”.
- Click Save.
Instalments
The bursary and scholarships item can also be added as a Regular payslip item (on every payslip) and can be paid to the employee or directly to the educational institution by the employer.
Regardless of how the item is paid, the prescribed annual limits and conditions must be adhered to in order for the payment to retain tax-exempt status.
To add this:
- Go to Employees on the left-hand menu and select the relevant employee.
- Click Add next to Regular Inputs.
- Select Bursaries And Scholarships (regular) under Benefits.
- Enter the Taxable Portion and / or Exempt Portion of the bursary or scholarship.
- Select the Employee handles the payment checkbox if relevant. Please note: Selecting this checkbox will add an allowance item to the employee’s payslip. This item will not influence PAYE.
- Select the type of study from the dropdown menu:
“Basic Education (Grade R to 12 and NQF levels 1 to 4) Education” or
“Further Education (NQF levels 5 to 10)”.
- Click Save.
Annual Limits and Base Requirements
Where bursary or scholarship is granted to the employee directly:
- Fully tax exempt provided the employee’s total remuneration does not exceed R600 000 in that year of assessment; and
- Confirmation of the condition that the employee repays the loan if they drop out or fail.
Where a bursary or scholarship is granted to a relative or a connected person of the employee:
- Annual limit of R20 000 for studies from Grade R to 12, including qualifications at NQF levels 1 to 4; or
- Annual limit of R60 000 for qualifications at NQF levels 5 to 10.
Note: These levels are increased for relatives of the employee who have disabilities (R30 000 and R90 000, respectively).
No salary sacrifice
In addition, a main condition for all types is that the exchange must NOT involve any element of salary sacrifice to make provision for the bursary.