Bursaries: the road travelled so far

Bursaries: the road travelled so far

Business, Human Resources, Legislation, Tax

One of the interesting inclusions in the Tax Law Amendment Bill (TLAB) of 2020 was the bursary issue. Its inclusion had been a poorly kept secret though as the proliferation of companies offering salary structuring services around the bursary issue had already alerted SARS to tax leakage. Employers had been transfixed by the promises made by these companies and it had become difficult to convince employers that such structuring carried more risk than reward.

So, when did the legislation in this regard become problematic?

In March 2006, the rules regarding the implementation of a bursary scheme for employees, and relatives of employees, were changed to allow for the use of a salary sacrifice mechanism to assist employers in factoring bursaries into their employees’ remuneration packages. This method was widely utilised to encourage employers to develop employees and their relatives by providing bursaries to both these parties. The benefit highlighted in all of the brochures promoting this scheme was the tax saving in the hands of the employee. It really was seen as a win / win situation, as employers also benefitted by receiving educated / developed employees without incurring additional costs.

In recent years, the method utilised when implementing this scheme has come under SARS scrutiny, as many employers adopted the approach of reclassifying remuneration already accrued to the employee to account for the value of the bursary. This had never been the intention of SARS and it was proposed in the TLAB of 2020 that from March 2021, this method of facilitating a bursary would be discontinued. The proposal has since been promulgated, meaning that from the beginning of March 2021:

  • The exemption would only be available if the bursary granted by the employer is not restricted to relatives of employees, but is an open bursary scheme available to members of the public.
  • The exemption would not be available if the employees’ remuneration includes bursaries or scholarships implemented by means of a salary sacrifice.
  • If the bursary was introduced utilising a salary sacrifice scheme, then the employer would not be entitled to a tax deduction for the bursary expense.

Where to now?

It’s important that employers who have existing bursary schemes in operation which were facilitated by means of a salary sacrifice, get some specialised tax help as soon as possible. This will be necessary to ensure that the remuneration structures are compliant going forward. Moving towards compliance will not be easy as it will involve some uncomfortable conversations with employees regarding their remuneration packages, and more importantly, changes to their take home pay. I would also advise that an experienced human resources practitioner be involved in this process as perceived changes to conditions of employment could find the employer embroiled in disputes at the CCMA.

If your organisation has an existing bursary scheme that includes a salary sacrifice component, or you are in any way concerned regarding its legislative compliance, please do not hesitate to contact us at [email protected].