Corporate Social investment

This is a bit of a brainteaser for us, so we would welcome comments:

A company chooses to sponsor the child of an employee by paying for his education. The sponsorship is designed so as not to be a salary sacrifice, and does not form any part of the employee’s salary package or group scheme.

The sponsorship is in the form an education policy that the company takes out on the life of the child, and is expressly used for the purposes of providing for his education. A trustee is appointed to manage this investment for this sole purpose.

We are comfortable that this contribution will be an acceptable CSI initiative. See Code 700, specifically the definitions of “Contribution Beneficiaries” and “Corporate Social Investment”.

Now, the questions we wondered about:

How is the investment seen from the viewpoint of tax?
1) There are two aspects – is it a tax deduction in the hands on the company.
2) In the hands of the beneficiary, ie the child of a working employee.

In our limited experience of tax, we believe that it will not be a taxable deduction in the hands of the company.
In addition, SARS may view it as a salary/perk in the hands on the employee.
The fact that it is a policy issued by a life assurance company may complicate the issue.

I’ll also ask our resident tax expert Cathy Bryant to comment.

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