South Africa: Proposed changes to tax-exemption rules for employer-provided scholarships, bursaries

South Africa: Proposed changes to tax-exemption rules

The 2020 Draft Taxation Laws Amendment Bill (released 31 July 2020) proposes a change to the conditions for an income tax exemption for scholarships and bursaries granted to relatives of employees—and specifically that the exemption not be based on a salary-sacrifice basis.


Related content


Section 10(1)(q) of the Income Tax Act No. 58 of 1962 provides an exemption for any bona fide scholarship or bursary granted to allow any person to study at a recognized educational or research institution. When a scholarship or bursary is granted to an employee (or the employee’s relative) by an employer or an “associated institution,” the amount of the scholarship or bursary will be exempt from tax, provided that certain conditions are met.

A draft explanatory memorandum to the legislative proposal notes certain bursary schemes, as well as tax planning opportunities, have been used and have resulted in a revenue loss. Consequently, the policy of making the tax exemption available, whether or not a bursary scheme contained an element of salary sacrifice, was reviewed.

Prior to the 2006 tax year, the exemption was not available when a scholarship or bursary was provided to an employee, subject to a salary-sacrifice arrangement (i.e., the employee’s cost to the company could not be restructured to include a scholarship or bursary). However, in 2006, amendments were made to the tax law to remove the exclusion of a salary-sacrifice arrangement from the exemption requirements in order to encourage skills development. Thereafter, the tax exemption was available regardless whether or not the bursary scheme contained an element of salary sacrifice.

Proposed changes

The bursary schemes that were subsequently developed and marketed focused on the implementation of a salary-sacrifice arrangement to fund the cost of the bursary. This approach was attractive to both employees and employers because the bursary could be used to pay school fees for the employee’s children at no additional cost to the employer. When correctly implemented, a portion of the employee’s package was provided in the form of a tax-free bursary which was paid by the employer directly to the educational institution. However, many of these schemes did not allow for a legitimate salary sacrifice and reclassified income that had already accrued to the employee in the form of a salary.

The prevalence of these schemes resulted in a loss of revenue for the government, and consequently it has been proposed that with effect from 1 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 apply if the bursary is granted subject to an element of salary sacrifice.
  • The employer deduction in relation to bursaries would only be available if the bursary granted to the employee’s relative is not subject to an element of salary sacrifice.

Read an August 2020 report [PDF 482 KB] prepared by the KPMG member firm in South Africa

© 2022 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

For more detail about the structure of the KPMG global organization please visit

The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us


Want to do business with KPMG?


loading image Request for proposal