Page 577 - SAIT Compendium 2016 Volume2

IN 66 Income Tax acT: InTeRPReTaTIon noTes IN 66 A scholarship or bursary will not qualify for the exemption if there is no repayment clause in the agreement with the
employer.
Example 2 – Conditional scholarship or bursary
Facts:
Z and J are each awarded a bursary from their employer, ABC (Pty) Ltd, to study at a recognised university. The bursary is granted on condition that the employees reimburse ABC (Pty) Ltd for the bursary if they fail to complete their studies for reasons other than death, ill-health or injury.
Z was injured in a car accident and could not write her examination.
J wrote his examination, but was unsuccessful in meeting the minimum requirements for a pass.
Result:
The bursary granted to Z will be exempt from normal tax in her hands.
The bursary granted to J will be exempt from normal tax if J reimburses ABC (Pty) Ltd for the bursary. The bursary will not be exempt from normal tax in J’s hands if he is not required to reimburse his employer.
Example 3 – Conditional scholarship or bursary
Facts:
M, an employee of FGH Ltd, was awarded a bursary to study at a national university, on condition that she reimburses FGH Ltd if she fails to complete her studies for reasons other than death, ill-health or injury. The bursary was granted for the successful completion of 8 modules, failing which, FGH would not grant M a further bursary until all of those subjects were passed.
M passed seven of her eight modules in the current year. She had to repay FGH Limited only for the subject that she failed.
Result:
M’s bursary will be exempt from normal tax under s 10(1)(q).
(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 rst 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 s (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 bene t in terms of para 2(h), read with para 13. Although the scholarship or bursary is granted to the relative of the employee (and not to the employee), para 16 deems any bene t or advantage of this nature granted by the employer to the relative of such employee to be a taxable bene t in the hands of such employee.
Example 4 – Calculation of exempt portion for employees’ relatives
Facts:
A and B (Z’s children) and R (J’s child) were awarded a scholarship of R17 000 each by ABC (Pty) Ltd to study at a university of technology. The remuneration earned by Z and J during the current year of assessment was R100 000 and R105 000, respectively.
Result:
Z’s remuneration did not exceed R100 000. She will therefore receive an exemption of R10 000 in respect of each scholarship received by her children. The taxable portion of each scholarship received will thus amount to R7 000 (R17 000 less R10 000). An amount of R14 000 (2 x R7 000) is deemed to be a taxable bene t in Z’s hands.
J’s remuneration exceeded R100 000. The full scholarship amount of R17 000 awarded to his child is subject to normal tax in J’s hands.
5.3 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 de nition of ‘employee’ in para 1 including employees who retired on or after 1 March 1992.
5.4 Research
The payment received by a person who undertakes research for the bene t 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 s 10(1)(q). The person paying the amount will qualify for a deduction, subject to the provisions of sections 11(a) and 23.
5.5 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 s 8(4)(a), be included in such taxpayer’s income in the year of assessment in which such amount is recouped. 5.6 Study loans
A loan does not constitute income for normal tax purposes as a loan is of a capital nature and is, therefore, not taxable. Personal study loans obtained from a nancial institution or from any other source unrelated to employment are not taken into consideration for purposes of s 10(1)(q), nor are the study expenses incurred by the holder of the loan, including the
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