• Sep 2010
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New learnership allowance (30min)

Recent amendments to this allowance provide some welcome tax relief for employers, including accountants and auditors, that enter into learnership agreements but there is a practical problem that needs to be resolved. This article outlines the implications of these recent amendments.

Section 12H was introduced into the Income Tax Act in 2002 and provides an additional tax deduction for employers, over and above the normal remuneration deduction that would be claimed under the general deduction formula. This additional allowance, referred to as the learnership allowance, is also claimed notwithstanding that the employer may have received a learnership grant from the relevant Sector Education and Training Authority (SETA). For example, FASSET pays a learnership cash grant to employers that enter into SAICA training contracts and a recipient of this grant would usually also be eligible for the s 12H learnership allowance.

To qualify for the learnership allowance, employers must enter into a “registered learnership agreement”, which is defined in s 12H(1) as –
(a) a contract of apprenticeship entered into before 1 October 2011 and registered in terms of s 18 of the Manpower Training Act, 1981, if the minimum period of training required in terms of the Conditions of Apprenticeship prescribed in terms of s 13(2)(b) of that Act before the apprentice is permitted to undergo a trade test is more than 12 months; or
(b) a learnership agreement that is -
(i) registered in accordance with the Skills Development Act, 1998; and
(ii) entered into between a learner and an employer before 1 October 2011.

SAICA training contracts registered with FASSET fall into para (b) of the definition. Note that the definition does not prescribe any minimum period for these (para (b)) learnerships.

Prior to the 2009 amendments to s 12H, two learnership allowances applied in respect of each learnership contract:

• A commencement allowance which varied depending on whether the learnership was entered into with an existing employee or a new employee. In the case of learnerships with existing employees, the allowance in the year of commencement was the lesser of R20 000 or 70% of the annual remuneration of the learner. Where a learnership was entered into with someone who was not previously employed by the employer, the allowance was the lesser of R30 000 or 100% of the learner's annual remuneration. These allowances were increased where the learner was a person with a disability.
• A completion allowance was claimed upon successful completion of the learnership, equal to the lesser of R30 000 or 100% of the learner's annual remuneration. Again, this allowance was increased in the case of a learnership with a person with a disability.
One of the most negative features of the “old” allowance was that a recoupment provision applied if the learnership was terminated early, for example if a learner transferred to another training office. The only exceptions to this recoupment rule were when a learner died or was dismissed due as a result of becoming physically incapacitated by ill-health or injury. This recoupment provision resulted in a negative tax result for employers who had little or no control over the decisions of their trainees to terminate, abandon or transfer their learnership agreements.

The recent amendments to the learnership allowance simplify the rules for calculating the allowance by removing all references to a percentage of the learner's annual remuneration and replacing this with a fixed amount. Furthermore, the quantum of the allowance has been enhanced and the “sting in the tail” in the form of the recoupment provision has been deleted.

The revised legislation provides for two types of allowances:
1. A commencement allowance of R30 000 for each year of assessment that the employer is party to a registered learnership agreement. The commencement allowance must be pro rated if a learnership agreement is in existence for less than twelve months during a particular year of assessment.
2. A completion allowance upon successful completion of the learnership of R30 000 or, where the duration of a learnership is 24 full months or longer, R30 000 multiplied by the number of completed twelve-month periods in the duration of the learnership.
Learnerships involving learners with disabilities benefit from a R20 000 increase in the allowances outlined above. As a result, these learnerships will be eligible for a commencement allowance of R50 000 for each year of assessment that the employer is party to the registered learnership agreement and a completion allowance of R50 000 or R50 000 multiplied by the number of completed twelve-month periods in the duration of the learnership if the duration of the learnership is 24 months or longer.
Some examples will help the reader to understand how the new allowances will apply to training contracts in various scenarios.

Example 1
Assume an employer with a February year-end enters into a two-year learnership agreement on 1 January 2010. The learnership agreement is registered immediately (on 1 January 2010) by the relevant SETA and the learner is not a person with a disability.

Result:
• Year of assessment ended 28 February 2010: The employer may claim a commencement allowance equal to R5 000 (calculated as R30 000 X 2/12 as the learnership was in existence for two months during the current year).
• Year of assessment ended 28 February 2011: The employer may claim a commencement allowance equal to R30 000 as the learnership agreement was in existence for the whole year.
• Year of assessment ended 28 February 2012: The employer may claim a commencement allowance equal to R25 000 (calculated as R30 000 X 10/12 as the learnership agreement ran for ten months of the year, from 1 March to 31 December 2011). In addition, the employer may claim a completion allowance of R30 000 as the learnership agreement was successfully completed on 31 December 2011 and its duration was not more than 24 months.
The total allowances claimed by the employer therefore total R90 000 over the three years of assessment. Under the old legislation, the allowances would have been capped at a maximum of R60 000 in total (R30 000 commencement allowance and R30 000 completion allowance). Therefore, even on short-term learnerships, employers will enjoy greater benefits under the amended legislation; however, the benefits increase exponentially for learnership agreements longer than two years.

Example 2
Assume an employer (A) enters into a three-year training contract with a learner who is not a person with a disability on 1 March 2010. After eight months (on 31 October 2010) the learner leaves employer A and transfers his training contract to a new employer (B). Both employers have years of assessment ending on the last day of February. The training contract is registered by the SETA immediately on 1 March 2010.

Result:
• Year of assessment ending 28 February 2011: The commencement allowance must be shared between employers A and B according to the number of months during the year that each one was a party to the learnership agreement. Therefore, employer A may claim a commencement allowance of R20 000 (R30 000 x 8/12, as the period from 1 March to 31 October 2010 is eight months) and employer B may claim a commencement allowance of R10 000 (R30 000 x 4/12, as the period from 1 November 2010 to 28 February 2011 is four months). Employer A does not suffer a recoupment of his commencement allowance when the trainee transfers to another employer.
• Year of assessment ending 28 February 2012: Employer B may claim the commencement allowance of R30 000 as he has a registered learnership agreement in existence for the whole of this year.
• Year of assessment ending 28 February 2013: Employer B may claim the commencement allowance of R30 000 as he has a registered learnership agreement in existence for the whole of this year and the completion allowance of R90 000 (R30 000 x 3, being the number of completed periods of twelve months in the duration of the three-year learnership). Therefore, the total allowances claimed by employer B in this year will be R120 000.
Therefore, over the three-year period, employer A has claimed allowances of R20 000 and employer B has claimed allowances totalling R160 000: a total of R180 000, which is much more generous than the previous allowances that would have been capped at a maximum of R60 000 in total!

Example 3
Assume an employer with a December year-end enters into a three-and-a-half year learnership with a learner with a disability on 1 January 2010. The learner completes the learnership on 30 June 2013.
• Years of assessment ending 31 December 2010, 2011 and 2012: the employer may claim the full R50 000 (R30 000 plus the additional R20 000 that applies in the case of a learner with a disability) commencement allowance in each year.
• Year of assessment ending 31 December 2013: The employer may claim a commencement allowance of R25 000 (R50 000 x 6/12 as the learnership agreement was in place for six months of the year) and a completion allowance of R150 000 (R50 000 X 3, being the number of completed twelve-month periods in the duration of the learnership). The six-month period served in 2013 is not taken into account in calculating the completion allowance because this period does not constitute a full twelve-month period.

Example 4
The facts are the same as in Example 3, except that the learner abandons his training contract at the end of February 2013 (i.e. before completion in June).
Years of assessment ending 31 December 2010, 2011 and 2012: the employer may claim the full R50 000 commencement allowance in each year.
Year of assessment ending 31 December 2013: The employer may claim a commencement allowance of R8 333 (R50 000 x 2/12 as the learnership was in existence for two months from January to February 2013). The employer may not claim any completion allowance because the learner failed to complete the learnership. Note that there is no recoupment in this year, even though the learnership was never successfully completed.

Although the new learnership allowance is more generous than before, a practical problem arises where there is a delay between the commencement of a learnership agreement and the actual registration of that learnership by the SETA. For example, a practitioner may sign a learnership agreement with a commencement date of 1 January 2010 but that agreement might only be registered by the SETA a few weeks later. If the strict wording of s 12H is applied, this delay in registration will result in financial loss to the practitioner as the allowances and the counting of the completed twelve-month periods will only be triggered once the learnership is registered. The loss to the practitioner is illustrated in the following example:

Assume the practitioner referred to above has a February year-end and he enters into a three-year training contract. The practitioner's learnership allowances will be calculated as follows:

• Year of assessment ending 28 February 2010: The practitioner may not claim a commencement allowance as the learnership agreement had not yet been registered by the SETA on 28 February 2010, even though the learnership affectively started on 1 January 2010. Had the learnership been registered immediately, i.e. on 1 January 2010, the practitioner would have been entitled to a tax deduction of R5 000 (R30 000 x 2/12) in this year.
• Years of assessment ending 28 February 2011 and 2012: The practitioner may claim a commencement allowance of R30 000 in each year as a registered learnership agreement is in place for the whole year.
• Year of assessment ending 28 February 2013: The practitioner may claim a commencement allowance of R25 000 (R30 000 x 10/12, as the learnership was in existence for ten months of the year - from 1 March to 31 December 2012) and a completion allowance of R60 000 (R30 000 x 2, as there are two completed periods of twelve months between the registration of the learnership on 1 March 2010 and its conclusion on 31 December 2012). Had the learnership agreement been registered immediately on 1 January 2010, this completion allowance would have amounted to R90 000 (R30 000 x 3 as there would have been three completed twelve-month periods within the duration of the agreement).

The delay in the registration of the learnership agreement in the above example results in the practitioner losing out on tax allowances totalling R35 000 (R5 000 commencement allowance lost in the 2010 tax year and R30 000 completion allowance lost in the 2013 tax year).

This problem has been raised with the secretariat at SAICA, who will seek clarity on the matter from SARS. An amendment to the provision may be necessary to allow learnerships to qualify for the allowance over their full duration where a delay in registration is unavoidable due to administrative processes.

The new learnership allowance is certainly an improvement on the previous version and it is hoped that this will provide some stimulus to skills development in South Africa.

Author: Professor Jackie Arendse, is Head: School of Accountancy, University of the Witwatersrand

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Comment(s)

• JOHN MOFOKENG
  8 September 2010

  I would like to be part of the learnership for accounting for next year i am available at any time convinient to you.

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