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Learnership Agreements

• By : Gary McLean CA (SA) | Member | Charteris & Barnes, Chartered Accountants (SA) | Prepared by CORE TAX

Learnership agreements – what does the Income Tax Act allow as deductions? Training and development for employees play a vital role in the growth and success of your business. However, finding affordable and correct tools might be where the concerns start creeping in. Suddenly you’re left thinking… “They’ll learn on the job. Resources are limited.” Fortunately, you will be pleased to know that the learnership allowance is intended to be an incentive for employers to encourage skills development within their workforce, with the hope to create jobs and economic growth.

Section 12H of the Income Tax Act provides an additional deduction for employers from the employer’s income from his trade. This deduction is over and above other normal remuneration deductions. The allowance is intended as an incentive for employers to train employees in a regulated environment in order to encourage skills development and job creation.

Section 12H will apply if, during any year of assessment, a learner entered into a registered learnership agreement with an employer or was a party to a registered learnership agreement with an employer and the learner successfully completed the learnership during the year. The learnership agreement should always be entered in the course of the employer’s trade, from which income is derived.

The discussion below relates to allowances for learnership agreements entered on or after 1 October 2016 but before 1 April 2022.

The amount of the allowance differs, depending on whether the learnership agreement is entered into with a person (a learner) in possession of a qualification on NQF level 1 to 6, or a person (a learner) in possession of a qualification on NQF level 7 to 10 and whether the person has no disability or has a disability.

The allowances can be summarised as follows:
A learner in possession of qualification on NQF level 1 to 6 (under Chapter 2 of the National Qualifications Framework Act) an annual as well as a completion allowance R40 000 if not a disabled learner. This amount increases to R60 000 if the learner is disabled.
A learner in possession of qualification on NQF level 7 to 10 (under Chapter 2 of the National Qualifications Framework Act) an annual as well as a completion allowance of R 20 000 if not a disabled learner. This amount increases to R 50 000 if the learner is disabled.

The allowance is made up of two parts:
An annual allowance – this is available for each year of assessment in respect of which the learner partakes in the learnership. It is apportioned if the agreement was not in effect for the full year.

A completion allowance – a once-off allowance available in the year of assessment in which the learner successfully completes the registered learnership agreement. It is claimed in full regardless of which month in the year the learnership was completed. It is claimed in addition to the annual allowance, meaning that in the year of completion, the employer can claim both the annual allowance and the completion allowance.

The annual allowance is a pro-rata portion if the learner is a party to a registered learnership agreement for less than 12 full months during the year of assessment. Apportionment will, therefore, apply if the learnership agreement commenced or ended part way through the year of assessment. The completion allowance is a once-off allowance available to an employer on completion of the learnership agreement in addition to the annual allowance. For learnership agreements of less than 24 months, the completion allowance equals one full year’s annual allowance. For learnership agreements of 24 months or more it is multiplied by the number of completed years’ service. The completion allowance is only available for contracts one year or longer and is calculated on completed years of service.

There are conditions on how each of these allowances will be apportioned in respect of the period of the registered learnership agreements.

For instance, a company whose financial year-end is February entered into a learnership agreement (NQF 1) for 16 months on 1 May 2019. The company will be entitled to the following allowances:
28 February 2020 Annual allowance of R33 333 ( R40 000 x 10/12.)
28 February 2021 Annual allowance of R20 000 (R40 000 x 6/12) Completion allowance of R40 000.

A longer learnership agreement, say extending for 48 months with a completion allowance of R40 000 for every 12 months completed, will result in a completion allowance of R160 000 (R40 000 x 4).

An employer may not claim an annual or completion allowance if the learner has previously failed to complete a registered learnership agreement within the same organisation, and the learnership agreement contains the same modules or material as the previously registered learnership.

Section 23B prohibits a deduction or an allowance under more than one provision of the Act. Section 23B is not applicable where a section expressly permits a double deduction. Section 12H is an example of an allowance section which expressly permits the allowance under section 12H in addition to the salary costs claimed as a deduction in terms of section 11(a) of the Act.