Learnership allowance: training does pay

2008-11-05 00:00

A sometimes overlooked deduction available to employers is the learnership allowance. Apart from the tax benefit for the employer, there are also socio-economic benefits.

For the employer, there is an incentive to encourage job creation and training, which results in the enhancement of skills of current and new employees, thereby improving productivity in the workplace.

For the employee, it exposes him or her to practical experience that encompasses supervision and hands-on training.

For the economy, job creation reduces unemployment and poverty; the employee contributes to the economy by spending his earnings on goods and services. The enhancement of human capacity goes towards addressing the skills shortage facing many sectors of the economy.

Section 12H of the Income Tax Act allows for a deduction of an allowance in the hands of the employer where the employer has entered into a registered learnership agreement with a learner.

The employer claims a deduction twice: once when the learnership agreement is entered into and then when it is has been completed.

The tax incentive has been extended to be applicable to registered learnership agreements entered into before October 1, 2011.

So what amount will be allowed as a learnership allowance?

Where the learner was employed by the employer at the time of entering into the learnership agreement, the deduction will be limited to the lower of 70% of the employee’s remuneration for the duration of the learnership period (limited to 12 months) or R20 000.

Where the learner, prior to entering into a learnership agreement was unemployed, the deduction will be limited to the lower of the employee’s remuneration for the duration of the learnership period (limited to 12 months), or R30 000.

On completion of the learnership by the employee, the deduction will be the lower of the employee’s remuneration for the duration of the learnership period (limited to 12 months) or R30 000.

Where the learner is a disabled person as defined in the Employment Equity Act, the amount of the allowance is as follows:

Where the learner was employed by the employer at the time of entering into the learnership agreement, the deduction will be limited to the lower of 150% of the employee’s remuneration for the duration of the learnership period (limited to 12 months) or R40 000.

Where the learner, prior to entering into a learnership agreement was unemployed, the deduction will be limited to the lower of 175% of the employee’s remuneration for the duration of the learnership period (limited to 12 months), or R50 000.

On completion of the learnership by the employee, the deduction will be the lower of the employee’s remuneration for the duration of the learnership (limited to 12 months), or R50 000.

However, a problem arises with certain apprenticeships — those which extend over a number of years and no new contract is entered into each year. In these cases the benefit for the employer is much lower than it would be if a new contract were entered into each year.

This has been addressed in the recent Revenue Laws Amendment Bill, 2008. For any contract of apprenticeship which extends over a number of years, the deduction to be allowed is the initial allowance on entering the learnership agreement and the completion deduction multiplied by minimum number of years of the apprenticeship.

The completion deduction will be allowed in the year the trade test is undertaken.

So let the training regime begin for a better future for all.

Rajesh Koovarjee,

senior tax manager,

Corporate Tax and legal,

KPMG Services

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