The Income Tax Act, under Section 10(1)(q), allows tax payers to receive an employee benefit, from their employer, whereby the employer pays the school of tertiary fees and related costs, for schools and colleges/universities, without attracting benefit tax, but limited to:

  • Grade R to Grade 12 or NQF level 1 – 4 ; R20 000.00 per annum per child
  • Tertiary Level (NQF Level 5 – 10) ; R60 000.00 per annum per child

Section 10(1)(q) provides parents with a more efficient way to fund their children’s education.

In order for a Section 10(1)(q) deduction to apply, the following requirements must be met in terms of the bursary or scholarship:

  • The scholarship or bursary must be a bona fide scholarship or bursary
  • It must be granted to enable or assist a person to study; and
  • The student or learner must study at a recognised educational or research institution
  • There must be an agreement between Employer and Employee, which includes conditions. For example, student must repay fees and costs, if he/she fails their exams, etc.

It is important to note that, in order to qualify, the gross remuneration threshold for an employee is limited to R600 000.00 per year.  Those earning in excess of this threshold do not qualify for the exemption.

Examples

The following are two scenarios, one for school bursary (R20 000 per annum), earning R20 000 per month, and then for NQF level 5-10 bursary (R60 000 per annum), earning R40 000 per month.

Example 1:  Grade R to 12 (NQF levels 1-4)

Example 2:  Tertiary (NQF levels 5 – 10)
Before Section 10(1)(q) deduction After Section 10(1)(q) deduction   Before Section 10(1)(q) deduction After Section 10(1)(q) deduction
Gross annual salary R240 000 R220 000 Gross annual salary R480 000 R420 000
School bursary N.A. R20 000 Tertiary bursary N.A. R60 000
Total remuneration R240 000 R240 000 Total remuneration R480 000 R480 000
Less:  Bursary exemption N.A. (R20 000) Less:  Bursary exemption N.A. (R60 000)
Taxable income R240 000 R220 000 Taxable income R480 000 R420 000
PAYE per annum (R32 511) (R27 311) PAYE per annum (R106 455) (R85 019)
UIF (R1 784) (R1 784) UIF (R1 784) (R1 784)
Net income R205 705 R190 905 Net income R371 761 R333 197
School fees per annum (R20 000) Paid via bursary NQF fees per annum (R60 000) Paid via bursary
Balance R185 705 R190 905 Balance R311 761 R333 197
Tax Saving per annum   R5 201 Tax Saving per annum   R21 436

The tax saving could become quite significant, should you have more than one child at school or college.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)