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How organisations can help improve education affordability

New tax benefit comes at no cost to employers and can help reduce the cost of education in SA.

South Africa has been confronted by many challenges directly linked to the inaccessibility of affordable education. Since 2015 there has been much debate around the #FeesMustFall movement, where students took to the streets to march for free higher education.

In mid-December 2017, the former President of the country Jacob Zuma announced that at the beginning of 2018 free higher education would be provided to all new first year students from families earning less than R350 000 per year.

Students whose family income exceeds R350 000 and is below R600 000, dubbed as the ‘missing middle’, do not qualify for free education. Yet, these students will not incur any fee increment.

How the private sector can help

Companies now have an opportunity to become an Employer of Choice through the SmartFunder Tax-deductible Education Bursary Fund for Employees benefit. This opportunity is one that is difficult to overlook at a time where organisations are looking for creative ways to enhance their Employee Value Proposition (EVP).

EVP is about defining the essence of your institution and about what makes it unique and makes the people proud and motivated to work there. If your employee currently earns less than R600 000 per annum in total remuneration and pay for their children or a relative who is in school (Grade R – 12) or in college or university (NQF level 5 – 10), employers can take up this benefit. The benefit comes from moving their employee’s education expenses from a post-tax to a pre-tax expense, by way of a new company benefit. 

The net effect is that your employees save on tax on the education fees and this means that their disposable income increases.

There is also no cost to the employer since Smartfunder will administer the tax-deductible education bursary benefit on their behalf. Organisations can help their employees to educate their relatives as a maximum of R20 000 per bursary (for grade R – 12) and R60 000 per bursary (for NQF level 5 – 10) is tax free.

The qualifying expenses could include; registration fees, tuition fees, examination fees, books, transport, accommodation, equipment, stationery, school uniforms, meals that are paid directly to the educational institution. An educational institution includes any institution that is registered and recognised under the laws of South Africa.
 
So, what if the fees are more than R20 000 or R60 000 or less than the tax-exempt cap?

An employee can choose their own amount to be deducted and you don’t have to use the maximum tax-exempt benefit amount. The monthly payroll deduction will be divided into equal monthly instalments, based on the total outstanding educational fees or expenses until the end of the calendar year.
 
What is the catch?

There is no catch and it is completely budget neutral for the employer. There is a small administration fee that the employee pays every month from their savings. The fee equates to roughly 10% of the savings you receive from Sars and is calculated based on your income. 
 
Section 29 of our constitution states that:
29. (1) Everyone has the right;
(a) to a basic education, including adult basic education; and
(b) to further education, which the state, through reasonable measures, must make progressively available and accessible.
 
Organisations have a fundamental and pivotal role to play with regards to education, contributing to combating the skills shortfall that has beset the country and growing the economy.

Smangele Maphanga is sales manager at 21st Century.

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This is salary sacrifice, whether for a good cause or not. Is there a specific Tax Act provision for this fringe benefit?

and, How on earth is the service provider fee being based on the tax saving legal or ethical????

Companies are already legally allowed to deduct bursaries they give to their staff from their taxable income, provided that there is an agreement specifying that the bursary is repayable or requires the beneficiary to work back the bursary for an agreed time period.

So I agree with you – what’s the point of having the middlemen above and paying them a fee? What possible value are they adding? Just get your accountant to claim the expenditure as a deduction. Why pay the company above for anything?

Incitatus:

Agreed. The odds that your kid is studying something that your company would extend a properly evaluated bursary award for and that carries a work back obligation must be close to zero. If this stuff rolls out companies will be awarding (some more than likely the managerial types) staff’s kids bursaries knowing full well that the bursary (1) was awarded courtesy of parental employment not merit (2) they sell alternators and the kid is studying veterinary science. That is plain and simple tax evasion.

education should be free for all, rich or poor solong as a willing South African child… not foreign national… is willing to study and in a bona fide goverment recognized institution…

How do we fund it?
I say let us use half of the fuel levy used for the socalled Road Accident Fund and put utilize it for something so valuable as educating the nation for a better future than spend such a good cash injector for accidents.

South Africas priorities are misplaced….

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