SARS Interpretation Note 66 on Scholarships and Bursaries in South Africa
This note explains how scholarships or bursaries for education are taxed. These scholarships are given to individuals studying at recognized educational or research institutions. Practice Note No. 17 of 12 March 1993 is hereby withdrawn.
Scholarships or bursaries given to help someone study at a recognized educational or research institution are usually not taxed. This exemption is, however, subject to certain conditions, particularly where the scholarship or bursary is granted by an employer (or an associated institution in relation to that employer) to an employee or to a relative of such employee.
Application of the law
Exemption
Generally, bona fide bursary or scholarships are fully exempt from normal tax, provided –
• they are awarded solely on merit to any applicant and are not to any extent confined solely to employees or relatives of employees of a particular employer;
• the scholarship or bursary is awarded to enable the scholarship-holder to study at a recognised educational or research institution; and
• certain conditions are met.
Conditions
The exemption of a scholarship or bursary granted by the employer (or by an associated institution in relation to the employer) to the employee or to a relative of such employee is subject to the following conditions:
a) A scholarship or bursary awarded to the employee is not exempt from normal tax in the hands of the employee unless he or she agrees to reimburse his or her employer for the scholarship or bursary if he or she fails to complete his or her studies for reasons other than death, ill-health or injury. See section 10(1)(q)(i). The Explanatory Memorandum on the Revenue Laws Amendment Bill, 2006, explains that bursaries granted to employees are exempt from tax – “…as long as the employee agrees to repay the employer if the employee fails to fulfil his or her scholarship or bursary obligation… This repayment clause provides an incentive for employees to take their scholarship or bursary commitments seriously.” The obligation of an employee to complete his or her studies therefore refers to the study obligations imposed on the employee under the scholarship or bursary. A scholarship or bursary will not qualify for the exemption if there is no repayment clause in the agreement with the employer.
b) A scholarship or bursary awarded to a relative of an employee is not exempt from normal tax in the hands of the employee if the remuneration derived by the employee during the year of assessment exceeded R100 000. The first R10 000 of a scholarship or bursary awarded during the year of assessment, where the remuneration derived by the employee during the year of assessment does not exceed R100 000, is exempt from normal tax in the hands of the employee. The R10 000 exemption limit applies to each relative of the employee who is granted a scholarship or bursary. To the extent that the scholarships or bursaries granted to the relatives of the employee are not exempt from normal tax in terms of section (10)(1)(q)(ii), the scholarships or bursaries will be subject to normal tax in the hands of the employee. The amount of the scholarship or bursary paid by the employer, in this instance, will be regarded as a payment of the employee’s debt, which is a taxable benefit in terms of paragraph 2(h), read with paragraph 13. Although the scholarship or bursary is granted to the relative of the employee (and not to the employee), paragraph 16 deems any benefit or advantage of this nature granted by the employer to the relative of such employee to be a taxable benefit in the hands of such employee.
Retired employees
Scholarships or bursaries granted to a relative of an employee who retired on or after 1 March 1992, irrespective of the reason for the retirement, will be subject to the limitations referred to in 5.2 regardless of whether the scholarship or bursary was granted before or after the employee’s retirement. This is due to the definition of “employee” in paragraph 1 including employees who retired on or after 1 March 1992.
Research
The payment received by a person who undertakes research for the benefit of another person (see 4.2), will be subject to normal tax in his or her hands and he or she will not qualify for the exemption in terms of section 10(1)(q). The person paying the amount will qualify for a deduction, subject to the provisions of sections 11(a) and 23.
Recoupment
Any amount recouped by a taxpayer which arises in respect of a scholarship or bursary granted by such taxpayer, where the amount of the scholarship or bursary has been allowed as a deduction against the income of such taxpayer will, in terms of section 8(4)(a), be included in such taxpayer’s income in the year of assessment in which such amount is recouped.
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