Section 10(1)(q) Improve company cash flow and your employees’ cash flow

Section 10(1)(q), if administered correctly by the employer, can provide value to the company’s qualifying employees as well as to the company.

 

In simple terms if:

  • The employer pays for the employees’ or the relatives of the employees’ school or tertiary fees directly to the relevant education institutions,
  • Then the employees’ salaries can be restructured so as to include these payments as pre-tax deductions – thus saving the employees’ tax and improving their personal cash flow.

The benefit for employers is a reduced Skills Development Levy (SDL) as SDL is not calculated on the S10(1)(q) exemption.

Section 10(1)(q) exempts any bona fide scholarships or bursary granted to assist or enable any person to study at a recognised educational research institution. In the case of a scholarship or bursary granted to a relative of an employee the exemption is applicable provided the employee’s remuneration does not exceed R600,000 per year, and is limited to:

  • R20,000 per year for grades R to 12 (NQF levels 1 to 4); or
  • R60,000 per year for NGF levels 5 to 10.

In the case of assistance to a disabled person who is a member of the employee’s family, where the employee has a duty of family care and support in respect of the disabled person, the exemption is limited to:

  • R30,000 per year for grades R to 12 (NQF levels 1 to 4) or;
  • R90,000 per year for NGF levels 5 to 10.

The proviso of employee remuneration not exceeding R600,000 per year applies equally in this case.

Below are two practical examples to illustrate the tax benefits.

section 10(1)(q)
Savings from Section 10(1)(q)
Employee A
- Child 1 (Grade 5) - R14,400 actual school fees per annum
- Child 2 (Grade 8) - R19,800 actual school fees per annum
- Child 1 (Grade 5) - R20,000 S10(1)(q) annual limit
- Child 2 (Grade 8) - R20,000 S10(1)(q) annual limit
Section 10(1)(q) NOT APPLIEDSection 10(1)(q) APPLIEDAnnual Tax saving employee
Employee annual salaryR600,000.00R565,800.00
Employee bursary/scholarship S10(1)(q) Child 1R0.00R14,400.00
Employee bursary/scholarship S10(1)(q) Child 2R0.00R19,800.00
Employee bursary/scholarship S10(1)(q) Exemption - Child 1R0.00-R14,400.00
Employee bursary/scholarship S10(1)(q) Exemption - Child 2R0.00-R19,800.00
Total annual remunerationR600,000.00R600,000.00
Taxable incomeR600,000.00R565,800.00
Tax thereon-R165,206.61-R151,868.61
Less: Primary rebateR14,220.00R14,220.00
Less:UIF-R1,784.64-R1,784.64
Total net annual salaryR447,228.75R426,366.75
School fees per annum - Grade 5-R14,400.00Paid under the bursary scheme by the employer to the educational institution.
School fees per annum - Grade 8-R19,800.00
Total net annual salary after payment of school feesR413,028.75R426,366.75R13,338.00
Employee B
- Child 1 (Grade 10) - R19,800 actual school fees per annum
- Child 2 (NQF Level 5) - R58,000 actual school fees per annum
- Child 1 (Grade 10) - R20,000 S10(1)(q) limit
- Child 2 (NQF Level 5) - R60,000 S10(1)(q) limit
Section 10(1)(q) NOT APPLIEDSection 10(1)(q) APPLIEDTax saving employee
Employee annual salaryR600,000.00R522,200.00
Employee bursary/scholarship S10(1)(q) Child 1R0.00R19,800.00
Employee bursary/scholarship S10(1)(q) Child 2R0.00R58,000.00
Employee bursary/scholarship S10(1)(q) Exemption - Child 1R0.00-R19,800.00
Employee bursary/scholarship S10(1)(q) Exemption - Child 2R0.00-R58,000.00
Total annual remunerationR600,000.00R600,000.00
Taxable incomeR600,000.00R522,200.00
Tax thereon-R165,206.61-R135,866.64
Less: Primary rebateR14,220.00R14,220.00
Less:UIF-R1,784.64-R1,784.64
Total net annual salaryR447,228.75R398,768.72
School fees per annum - Grade 10-R19,800.00Paid under the bursary scheme by the employer to the educational institution.
Educational fees per annum - NQF Level 5-R58,000.00
Total net annual salary after payment of school feesR369,428.75R398,768.72R29,339.97

As a division of MMS Group, MMS Cloud Accounting is equipped to provide businesses across South Africa with financial accounting and taxation solutions to service your business requirements. We can assist your business with the correct implementation and administration of Section 10(1)(q). Get in touch with us today for a fresh approach to business accounting and taxation.

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