Simplification of skills development tax incentives

The South African Government has committed itself to ensuring the empowerment of those persons who were previously disadvantaged by our dark past. One way in which it has done so is by giving tax incentives to employers for participating in programmes dedicated to the transfer and development of skills.

Section 12H of the Income Tax Act, 1962 was introduced to provide an incentive to employers to engage in the training of their employees in a manner that would benefit both the employer and the employee. This is in the form of a tax deduction for the employer when the employer enters into a so-called “registered learnership agreement” with an employee.

The section provided a mechanism for calculating the allowance to be deducted by the employer from the employer’s trade income.

The calculations for determining the allowance, as most employers would agree, were complex and complicated.

Section 12H has now been replaced in its entirety with a new provision that is far simpler and user friendly. In terms of the new section 12H, employers are entitled to a commencement deduction of R30 000 (R50 000 where the learner is a person with a disability) and for contracts exceeding 12 months a completion deduction of R30000 (R50000 where the learner is a person with a disability).

An employer will be allowed a deduction of R30000, during a year of assessment in which such employer and an employee enter into a registered learnership agreement which endures for less than 12 months. The deduction will be apportioned between the number of full months during which the employee is a party to the learnership agreement. Where the learnership agreement is for more than 12 months but less than 24 full months, the employer will be allowed another deduction of R30 000, upon successful completion of the learnership programme by the employee.

In instances where the learnership agreement is for a period of 24 months or more and the employee successfully completes the learnership programme, the employer will be allowed a deduction of R30 000 multiplied by the number of consecutive 12 month periods for which the agreement is in place in the year in which the learnership programme is successfully completed.

There is however a catch. In the event that the employer was previously a party to a learnership agreement for the same education training, and that learner failed to complete such programme, the employer will not be entitled to these deductions.