SAVINGS MONTH: Use your salary for a bursary and save big on tax
Company can help save you money
Despite being a constitutional right in South Africa, access to quality and affordable education is a major financial constraint for many people.
According to a Statistics South Africa report released last year, more than half or 1.4 million young people aged 18 to 24 did not attend any education institution as they had no money for fees.
Education can set you back around R50,000 a year for a public school according to Old Mutual, with one year of university fees rising from just over R58,000 to R250,000 by 2035.
Government has launched various initiatives in a bid to get a handle on the national student crisis, especially for previously disadvantaged households.
You can help reduce your tax liability significantly by asking your employer to pay for your and/or your child's school or university education.
Through a company bursary or scholarship you don’t only open the door to education, but you can stretch your income and your company can help decrease the burden on government.
Craig Raath, executive director at 21st Century, says the Revenue Amendment Bill of 2017 Section 10q makes provision for companies to help employees gain access to education in a tax efficient way.
Also, the South African Revenue Service allows income used to pay for education to be exempt from tax provided that certain requirements are met.
The thresholds for the bursary fund have recently been increased from a qualifying income of R400,000 a year to R600,000. The bursary threshold for studies from Grade R to Matric has been increased from R15,000 to R20,000 a year and for tertiary education from R40,000 to R60,000 a year.
If you earn above R600,000 you are disqualified from receiving a tax-exempt bursary/scholarship for a relative, says Daniel Baines, author of How to Get a SARS Refund. A relative is defined as a spouse, child, parent, sibling, grandchild, niece/nephew, uncle/aunt or grandparent.
Raath says your employer will pay fees directly to the educational institution and reflect it in your payslip as a non-taxable benefit.
Qualifying expenses include registration fees, tuition, books, transportation, accommodation, stationery, school uniforms and meals.
He, however, cautions that if the value of a bursary exceeds the R20,000 or R60,000 limits, the additional value will be taxed as a fringe benefit.
If you pay for your own studies and you want it to be exempt from taxation, you must meet these requirements: the bursary or scholarship must be bona fide; it must be for study at a recognised educational institution; and it must be a condition that you agree to pay back your employer if you fail to complete your studies for reasons other than death, ill-health or injury.
Chenay Carelse, consultant at Nolands Tax, echoes this, adding that you will be liable to repay the bursary or scholarship received and pay the tax thereon.
Reducing your tax liability
Baines says if you have a child at school but receive no bursary or scholarship, then on an annual salary of R200,000, your tax liability will be R36,332 (excluding any rebates). But if R20,000 of that income is designated as a bursary or scholarship, your tax liability reduces to R32,400.
You can reduce your tax liability by R3,932 for the tax year by asking your employer for a bursary agreement and having it pay a portion of your income under the code 3815 on your IRP5.
If, for example, you have a child at university and you receive R60,000 of your R200,000 annual income in the form of a bursary, exempt on your IRP5, your tax liability will be R25,200.
In this example the reduction in your tax liability will be R11,132 for the year, which is quite substantial, and can be achieved simply by reflecting part of your income under a different code.
Sars is likely to request documentary proof that your relative is studying at a recognised educational institution, so have this at hand, Baines says.
Chenay Carelse of Nolands Tax says despite the clear benefits for both you and your employer, take-up of the opportunity to pay bursaries has been slow due to various factors, including the perceived administrative burden to manage the tax risk, and communication with employees.
“More awareness is needed. Sars should also release guidance to decrease the perceived administrative burden.”