Author: David Beattie
Many South African employers look for creative ways to support their staff, especially when it comes to the high cost of a quality education. One popular option is offering bursaries to employees’ children, either as part of an employee benefits package or through Corporate Social Investment (CSI) initiatives.
While this can be a meaningful financial relief for families, it’s important to structure these bursaries correctly to avoid creating a taxable fringe benefit for the employee. Fortunately, Section 10(1)(q) of the Income Tax Act provides a workable framework, provided certain requirements are met. Below is a clear breakdown of how employers can offer this benefit tax-efficiently.
What the law allows
Under Section 10(1)(q), a bursary or scholarship granted to a relative of an employee, such as a child, can be wholly or partially exempt from tax if specific SARS conditions are met. When applied correctly, this allows employers to contribute meaningfully to education costs without the employee facing additional tax.
Key requirements for the tax exemption
- Employee income threshold
The exemption is only available to employees earning R600 000 or less per year (total remuneration).
If an employee exceeds this amount, the bursary automatically becomes taxable.
- Monetary limits per child per year
SARS sets clear limits on how much of the bursary may be tax-free:
- R20 000 – for schooling (Grade R to Grade 12) or equivalent NQF levels 1–4
- R60 000 – for tertiary education (NQF levels 5–10)
Higher thresholds apply for disabled learners:
- R30 000 – school-level education
- R90 000 – tertiary studies
Any amount exceeding these limits becomes taxable as a fringe benefit.
- It must be a bona fide bursary
To qualify, the bursary must:
- Be for genuine education purposes
- Be properly documented in writing
- Not serve as disguised remuneration
In other words, the bursary must exist for the learner’s educational advancement, not as a tax-free workaround to pay an employee more.
- No salary sacrifice allowed
This is one of the most important rules. The employee cannot give up part of their salary in exchange for the bursary. If a salary reduction or restructuring occurs to “fund” the bursary, SARS will treat the full amount as taxable. This means employers must offer the bursary over and above the employee’s normal remuneration.
Will this completely eliminate fringe benefit tax?
Not always. If the bursary amount exceeds the SARS limits, or if the employee earns above the R600 000 threshold, the excess will be taxable.
However, even if it doesn’t cover everything, appropriately structured bursaries can still offer meaningful financial relief to employees and help soften the cost difference when a child moves to a more expensive school or tertiary institution.
In conclusion, yes – an employer can pay for an employee’s child’s schooling or tertiary education without triggering a taxable fringe benefit, but only if the bursary is structured correctly and the SARS requirements are met.
This remains a valuable opportunity for companies wanting to support families, boost employee morale, and invest in education – while staying fully compliant with tax legislation.
Reach out to our tax team on [email protected] for more information.