Page 576 - SAIT Compendium 2016 Volume2

IN 66 Income Tax acT: InTeRPReTaTIon noTes IN 66
4.2 ‘Recognised educational or research institution’
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 quali es 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 quali cation obtained from that institution upon completion of such studies would be recognised by the South African Quali cations Authority under the National Quali cations Framework Act, 2008.
In cases where the educational or research institution does not fall into one of the above categories, the local SARS of ce should be approached for con rmation whether or not the institution quali es.
4.3 ‘To study’
The words ‘to study’ refer to the formal process whereby the person to whom the scholarship or bursary has been granted gains or enhances his or her knowledge, aptitude or expertise in the pursuit of learning. It is not a requirement that a degree, diploma or certi cate be attained on completion of the course of study.
Research undertaken by a person for the bene t of another person, for example, an employer, a business or sponsor, is not regarded as ‘studies’. Funding of such research will not constitute a bona de scholarship or bursary granted to enable or assist the researcher to study. See 5 below for the tax implications in this regard. A grant to a visiting academic for the purpose of lecturing students does not satisfy the study requirement, as the object of the grant will be to impart and not to gain knowledge.
4.4 ‘Remuneration’
The word ‘remuneration’ refers to the amounts payable by the employer to an employee for services rendered or by virtue of employment. For example, where an employer has granted a travelling allowance to the employee, the full amount of the allowance will be taken into account to determine if the remuneration derived by the employee during the year of assessment exceeded R100 000, as referred to in s 10(1)(q)(ii)(aa). It is clear, therefore, that the meaning of remuneration in this regard is not ‘remuneration’ as de ned in para 1 of the Fourth Schedule to the Act.
4.5 ‘Fund’
The word ‘fund’ is not de ned in the Act and must therefore be given its ordinary meaning. The Oxford Dictionary & Thesaurus* de nes the word ‘fund’ to mean ‘a stock of money, esp. one set apart for a purpose’. The Concise Oxford English Dictionary† de nes ’fund’ as a ‘sum of money saved or made available for a particular purpose’.
It is evident from the above dictionary de nitions that the meaning of the word ‘fund’ in subpara (c) of the de nition of ‘associated institution’ is very wide. As soon as a sum of money is set aside for a particular purpose (for example, to grant scholarships or bursaries), the said sum of money is a fund and is, in itself, classed as an associated institution in relation to the employer if it is solely or mainly established to provide bene ts to employees or former employees of a particular employer.
5. Application of the law
5.1 Exemption
Example 1 – A fund
Facts:
Company A set aside R1 million for various corporate responsibilities. R350 000 was set aside for corporate social responsibility, R200 000 for providing bursaries, and R450 000 for research and development. How will the R1 million be viewed for tax purposes?
Result:
Each of the allocated amounts is to be regarded as a ‘fund’ on its own.
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Generally, bona de scholarships or bursaries are fully exempt from normal tax, provided—
they are awarded solely on merit to any applicant and are not to any extent con ned 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.
5.2 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 s 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 ful l 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.
* The Oxford Dictionary & Thesaurus, rst published by Oxford University Press, 1993 as The Readers Digest Oxford Word nder.
† Concise Oxford English Dictionary edited by Catherine Soanes, Angus Stevenson.11th ed. rev New York: Oxford University Press, 2006.
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