You can greatly reduce your tax liability by asking your employer to pay for your child’s school or university education. This holds true for your own education as well, at any recognised educational or research institution
SARS allows income used to pay for education to be exempt from tax in terms of Section 10(1)(q) of the Income Tax Act, provided that certain requirements are met:
- If the bursary or scholarship is granted to an employee, the exemption will NOT apply unless the employee agrees to reimburse the employer for any bursary or scholarship if the employee fails to complete his/ her studies for reasons other than death, ill health or injury of the employee.
- There is no limit on the amount of the bursary to an employee
- If the bursary is granted to a relative of an employee, the exemption is limited to R20000 per year in respect of grades R to 12 or NQF level 1 to 4 or R60000 per year in respect of NQF level 5 to 10 (see NQF explanation below)
- The employee must not earn more than an annual equivalent salary of R600000
- SARS will likely request documentary proof that the relative is studying at a recognised educational institution, so have this at hand.
How will tax saving be applied
Instead of paying an increased salary to an employee, the employer will pay the bursary or scholarship amount. This amount will then be allocated as code 3815 on the IRP 5 certificate of the employee at the end of the tax year, which is exempt of tax.
For example:
If an employee earns a salary of R200000 per year, the tax liability will be R23174. If R20000 of this amount is allocated to a bursary, then the tax liability will be R18765, a tax savings of R4409 per year.
If we use a bursary of R60000 per annum in the above example, the savings equates to around R11609 for the year.
These savings are definitely worth considering should an employer be prepared to assist by structuring the employee salaries!
The National Qualifications Framework
The NQF is a framework, that sets the boundaries, principle and guidelines, which provide a vision, a philosophical base and an organisational structure, for the construction of a qualifications system. Detailed development and implementation is carried out within these boundaries. All education and training in South Africa fits within this framework.
It is national, because it is a national resource, representing a national effort of integrating education and training into a unified structure of recognised qualifications. It is a framework of qualifications i.e. records of learner achievements.
The NQF is a set of principles and guidelines by which records of learner achievements are registered, to enable national recognition of acquired skills and knowledge, thereby ensuring an integrated system that encourages lifelong learning.
The NQF consist of 10 levels divided into three band; Levels 1 to 4 equate to high school grades 9 to12 or vocational training, 5 to 7 are college diplomas and technical qualifications, 7 to 10 are university degrees.[4]
| Levels | Designation |
|---|---|
| 1 | Grade 9 |
| 2 | Grade 10 and National (vocational) Certificates level 2 |
| 3 | Grade 11 and National (vocational) Certificates level 3 |
| 4 | Grade 12 (National Senior Certificate) and National (vocational) Cert. level 4 |
| 5 | Higher Certificates and Advanced National (vocational) Cert. |
| 6 | National Diploma and Advanced certificates |
| 7 | Bachelor’s degree, Advanced Diplomas, Post Graduate Certificate and B-tech |
| 8 | Honours degree, Post Graduate diploma and Professional Qualifications |
| 9 | Master’s degree |
| 10 | Doctor’s degree |
