Deductions
1784. Learnership allowances
November 2009 - Issue 123
Section 12H was introduced into the Income Tax Act No. 58 of 1962 in 2002 and grants an additional tax allowance in respect of recognised learnership agreements entered into by employers. This allowance, which is over and above the normal deduction claimed by employers in respect of remuneration costs, is designed as an incentive for the training of employees to develop skills and create jobs. It comprises both a commencement and completion allowance.
The calculation of the allowances is generally based on the lesser of a stipulated amount (R20 000 for previously employed learners, and R30 000 for newly employed learners), and 70% of the remuneration of the employee.
Time-based apprenticeships are generally of a longer duration and consequently, in the completion year, the employer is entitled to successive commencement allowances in respect of each subsequent year.
In addition there is a fairly complex formula used to calculate the completion allowance, based on the number of years of the apprenticeship.
Enhanced allowances for learners with disabilities were introduced from 1 July 2006. The commencement allowance for existing disabled employees is 150% of the employee’s annual salary (up to a maximum of R40,000), or 175% of the annual salary (up to a maximum of R50 000) in the case of new employees.
The completion allowance in both cases is 175% of the annual salary, up to a maximum of R50 000. Where a learnership is terminated ‘mid-stream’, a recoupment arises unless the termination is caused by ill health or death.
Reasons for simplification of allowances
National Treasury has indicated, in its Explanatory Memorandum to the recently published legislation, that it has become apparent that the complexities and compliance costs involved in administering the learnership allowance program have overshadowed the benefits, and this acts as a deterrent for employers to claim the incentives. There is also recognition of the fact that the variables in the calculations need to be drastically reduced.
It has further been recognised that employers are being unfairly penalised in terms of the existing legislation as learnerships are often terminated prematurely due to circumstances beyond their control. This is particularly so where employees change employment for better pay or opportunities.
The amended legislation
A commencement and completion allowance of R30 000 has been introduced into the legislation, without any reference to the learner’s remuneration. There will be an uplift for both allowances to
R50 000 in respect of disabled learners. The recoupment provisions contained in section 12H have been dropped. Where a learnership is terminated before a period of 12 full months the initial employer will be entitled to a pro rata portion of the commencement allowance, regardless of the reason for the termination of the learnership.
If the learnership falls over 2 years of assessment, the commencement allowance will be allocated pro rata between both years based on the number of calendar months in each year. In such a situation the new employer that is assuming responsibility of a learnership in terms of section 17(5) of the Skills Development Act will be eligible for the remaining pro rata portion of the commencement allowance, as well as the entire completion allowance.
In the case of multi-year learnerships, the commencement allowance will be allowed in each successive year, as opposed to being deferred until the completion of the contract. In the event of a learner changing employment ‘midstream’, each employer will be entitled to the pro rata share of the commencement allowance in the year of the change, and the transferee employer will be entitled to the remaining commencement allowances for the remainder of the learnership.
The completion allowance for a multiyear learnership will be based on the number of years duration of the apprenticeship x R30 000.
Grant Thornton
Explanatory Memorandum on the Taxation Laws Amendment Bills 2009
Skills Development Act No. 97 of 1998: S 17(5)