Learnership Management System

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Author Topic: Learnership Allowances, Tax Deduction

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Learnership Allowances, Tax Deduction
on: May 5, 2014, 16:48

Recent amendments to the Income Tax Act have resulted in opportunities for employers to benefit through larger and significantly simplified additional tax deductions relating to registered learnerships entered into with their employees.

However, it was felt that the appeal of this incentive was being dulled by the complexities and high costs of administering the programmes in relation to the deductions allowed.The revised legislation has made entering into learnership agreements with employees far more attractive by removing the variables used in calculating the deduction, namely the employee’s annual remuneration, and standardising the allowance amounts at the higher end of the previously allowed spectrum.

Previously the amount of the allowance was dependent upon the employee’s remuneration and whether the employee was employed prior to entering into the learnership.
The allowance now consists of a commencement allowance of R30 000 and a completion allowance of R30 000 per learnership. As an encouragement and compensation for employers who develop learners with disabilities, a R50 000 commencement and completion allowance are deductible in place of the normal R30 000 allowance. These allowances are prorated if the learnership is for a period of less than a year.
Previously if a learnership agreement was terminated prior to its completion the employer was subject to a recoupment of all previously deducted allowances. Under the new legislation, in order to take into account that there are frequently circumstances and market contributors outside of the employer’s control which would contribute towards termination of learnerships, this recoupment rule has been removed.
Learnerships that are cut short of the required full 12 months through termination of the agreement will qualify for a pro rata amount of the commencement allowance. Where learnerships are transferred to the employee’s new employer, both the previous and the new employer will be entitled to a pro rata amount of the commencement allowance based on the number of months the employee was under their respective employ.
Multi-year learnerships have been promoted through the introduction of a commencement allowance to be allowed in respect of each successive year of the learnership, and not just one allowance at the true commencement of the learnership. The completion allowance for multi-year learnerships is calculated by multiplying the completion amount of R30 000 by the number of full 12 months periods of the learnership.
Multi-year learnerships will now be reaping the same ultimate benefits as a series of one year learnerships. The benefit for multi-year learnerships was previously restricted to multi-year apprenticeships. However, in terms of the amendments, all registered multi-year learnerships (two years or longer) will qualify for the multiple completion allowance.
These changes to the legislation will be effective for years of assessment ending on or after 1 January 2009.

Amendments to Learnership Tax Allowances

The Minister of Finance in his 2006 Budget Speech announced the extension of the learnership allowance for another five years. Moreover, the allowance amounts have been revised upwards, to pace with inflation adjustments in salaries and wages and an additional allowance has been introduced for people with disabilities.

Tax Incentive Update

On 15 February 2006, The Minister of Finance, Trevor Manual extended the Tax incentive for employers.

Extension and increase of the learnership allowance

In 2002, government introduced the learnership tax allowance to encourage on-the-job training and to enhance skills development. This allowance, set to expire in October 2006, has boosted the number of learnerships. In support of the extension of the National Skills Development Strategy, it is proposed that this allowance be extended to October 2011.

The maximum initial allowances will increase from R17 500 to R20 000 per year for existing employees and from R25 000 to R30 000 for new employees. Similarly, the maximum allowance upon the completion of the learnership will increase from R25 000 to R30 000 for agreements entered into from 1 March 2006, at an estimated cost of R80 million.

Consideration will be given to increasing the allowance for business process outsourcing.

Given the additional expenses associated with employing disabled persons as learners, a more favourable allowance will be introduced effective 1 July 2006. An employer will be allowed to deduct an initial allowance of 150 per cent of the annual salary of an existing learner with a disability, up to a maximum of R40 000; and 175 per cent for an unemployed learner with a disability, up to a maximum of R50 000. The tax allowance for disabled persons completing a learnership will be 175 per cent of the employee's annual salary, up to a maximum of R50 000.

Enhancement of scholarships and bursaries

Employee scholarships and bursaries are tax-exempt, unless viewed as being in lieu of salary compensation. The need to draw such a distinction creates unnecessary difficulties in application.

To simplify matters, bursaries and scholarships for current and future employees will be tax-exempt as long as the employer's funds go directly to tuition and tuition-related expenses, and the employee agrees to repay the employer if the employee fails to fulfil their scholarship or bursary obligations.

This proposal will take effect from 1 March 2007.

Tax Deduction for Learners under Review

Section (12H) of the Income Tax Act allows employers to deduct specified amounts of money when learners are registered onto learnerships and again, once they have completed the learnership. A distinction is made between learners who are currently employed, and previously employed learners. The maximum deduction for currently employed learners is R17 500, and R25 000 for previously unemployed learners. The intention behind the legislation is to incentivise employers to register learners onto learnerships by way of a tax saving.

National Treasury called a meeting with SARS, DoL, Fasset and Sasseta in July 2005 to discuss the possibility of excluding articled clerks in the legal and the accounting professions from the tax deduction. Based on submissions and presentations by Fasset, SAICA and Sasseta at a second meeting on 17 October 2005, National Treasury informed the parties that it no longer intended excluding articled clerks from the deduction. The submissions made, clearly indicated that the tax deduction was making a difference in the landscape of skills development and specifically in terms of changing the employment equity profile of learners registered on learnerships at Fasset.

The General Clause is still under review, however, and the Minister of Finance, Trevor Manuel, will need to make an announcement in this regard in his Budget Speech next year, as to whether this tax saving will remain after the current expiry date of 1 October 2006. Setas and DoL are preparing submissions to National Treasury to extend the general clause for a few more years in order to effectively evaluate its impact.

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