While boasting the second largest economy in Africa, we as South African citizens cannot hide from the reality of our unequal society. With unemployment hovering around the 25% mark and not being aided by a volatile economy, much has been made of the private sector’s role in uplifting and “saving” the economy. For this to be achieved, job creation and critical skill development will be of utmost importance.

Section 12H of the Income Tax Act No.58 of 1962 (Tax Act) assists in this regard by allowing employer’s a deduction in respect of qualifying learnership agreements which they are party to. Section 12H was introduced as an incentive to employers to encourage and promote skills development and job creation.

An employer is entitled to a deduction of a qualifying learnership allowance if;

  • During any year of assessment
  • A learner
  • Is party to a registered learnership agreement
  • With an employer
  • And the agreement was entered into pursuant to a trade carried on by that employer

Further, the learnership agreement is required to be registered in accordance with the Skills Development Act, 1998 and entered into before a certain date. The date noted in the Tax Act is 1 October 2016.

Allowances in Section 12H are categorised as (i) annual allowances and (ii) completion allowances.

Employers are allowed as a deduction an annual allowance of R30 000.00 per learner per year (R50 000.00 for disabled learners) for registered learnership agreements greater or equal to 24 months (there are certain limitations on registered learnership agreements less than or equal to 12 months).

A completion allowance equivalent to R30 000.00 is allowed  for registered learnership agreements less than 24 months, while the completion allowance for registered learnership agreements exceeding 24 months is equivalent to R30 000.00, increased by a factor of the number of consecutive 12 month periods.

The Taxation Laws Amendment Bill tabled in parliament on 26 October 2016 has however amended section 12H, with the proposed effective date being 1 October 2016. The proposed changes are as follows:

  • The period of the allowance has been extended from 1 October 2016 to 1 April 2022
  • The annual and completion allowances have been amended as follows:
    • R40 000.00 (additional R20 000.00 for a disabled learner) for a learner who holds a qualification equal to NQF level 1-6
    • R20 000.00 (additional R30 000.00 for a disable learner) for a learner who holds a qualification equal to NQF level 7-10

The intention behind the above amendments are to provide a greater allowance for less-skilled learners with a lesser allowance for more skilled learners, thereby encouraging greater skill development.

The above amendments may however see changes as National Treasury has called for submissions regarding the proposed changes contained in the Taxation Laws Amendment Bill.

For further information and to effectively make use of section 12H contact the tax team at RSM South Africa.

Ozeyr Ahmed

Manager | Corporate Tax Compliance, Johannesburg