S12H Learnership Allowance

Learnerships are an integral part of the country’s overall objectives to reduce poverty, increase skills within the workforce, and improve the economic growth of South Africa.
 
The government chose to encourage this by introducing a tax incentive for employers who enter Registered Learnership Agreements with their employees.
 
What is S12H Learnership Allowance?
 
The Learnership Allowance is a tax incentive introduced by the Minister of Finance in his 2002 Budget Speech as an additional tax deduction which may be claimed from the employer’s trade income when calculating the taxable income.
 
The incentive was available to all registered learnership agreements entered on or after 1 October 2001. Any registered learnership agreement entered between 1 October 2001 and 1 October 2016 fell under the old section 12H, which treated all skills levels equally.
 
Learnership agreements that were entered into on or after 1 October 2016, but before 1 April 2024, fall into the new section 12H which will be discussed in detail below.
 
The section 12H allowance has a sunset clause of 1 April 2024. The incentive will, therefore, be available to all registered learnerships entered into on, or before, 1 April 2024.
 
The tax incentive consists of both annual and completion allowances. 
 
Benefits of the Learnership Allowance
 
This tax incentive was introduced with the purpose of encouraging companies to upskill employees, create new opportunities, and effectively encourage human capacity development ensuring that we pass on the knowledge to the next generation.
 
The Learnership Allowance also benefits companies by reducing their overall tax liability and improving their B-BBEE compliance as skills development is a priority portion in a B-BBEE scorecard.
 
How do you Qualify for the Annual Learnership Allowance?
 
In terms of section 12H (2) of the Income Tax Act, employers will qualify for the annual allowance only if:
 

• During any year of assessment, the learner is a party to a registered learnership agreement with the employer.
• Training contracts that qualify for these deductions are learnership agreements and apprenticeships registered in accordance with the Skills Development Act (i.e., registered with a Skills Education Training Authority (SETA) in the prescribed form) and entered into between a learner and an employer before 1 April 2024.
• The learner holds an NQF-level qualification from 1 to 10 (if the learnership was entered into after 1 October 2016)
• The agreement was entered into in accordance with a trade carried on by that employer; and
• The type of trade is not specified in section 12H, meaning that  it may be any lawful trade which meets the definition of trade in section 1(1)
• The employer has derived “income” as defined in section 1(1) from that trade.

 
How is the Annual Learnership Allowance Calculated?
 

The annual allowance is deductible in each year of assessment where the learnership agreement is in place.
 
However, the allowance will be apportioned if the Learnership Agreement commenced or ended partway through the year of assessment. The pro rata portion is calculated as the number of full months that the learner was part of the learnership agreement in that year.
 
How do you Qualify for the Completion Learnership Allowance?
 
An employer is entitled to a once-off Completion Allowance during any year of assessment where the learner successfully completes the learnership.
 
In terms of section 12H (3) of the Income Tax Act, employers will qualify for the Completion Allowance only if:
 

• During any year of assessment, the learner is a party to a registered learnership agreement with the employer
• The learner holds an NQF-level qualification from 1 to 10
• The agreement was entered into pursuant to a trade carried on by the employer
• The employer derived “income” as defined in section 1(1) from that trade and
• The learner successfully completed the learnership during the year of assessment.

 
SARS also requires sufficient proof of the successful completion of the learnership agreement to allow the completion allowance under section 12H.
 
In addition to the relevant SARS IT180 form, confirmation from the relevant SETA is accepted by SARS to be confirmation of successful completion.
 
How is the Completion Learnership Allowance Calculated?
 

The completion allowance is a once-off allowance which is claimed in addition to the annual allowance. Meaning that in the year of completion, the employer can claim both the annual allowance discussed above and the completion allowance.
 
For learnership agreements with a duration of less than 24 months, the applicable completion allowance is claimed in full, in the year of completion.
 
For learnership agreements with a duration of more than 24 months, the completion allowance is calculated by multiplying the applicable allowance with the number of consecutive 12 month periods during which the learnership agreement was in place.
 
When does S12H not apply?
 
According to section 12H(6) of the Income Tax Act, an employer may not claim the learnership allowance under the following circumstances:
 

• Where a learnership agreement is not registered, or a learner is not in employment
• The learner has previously failed to complete a registered learnership agreement within the same organisation and
• The learnership agreement contains the same education and training component as the previous registered learnership.

 
Termination of Learnership Agreement
 
If a registered learnership agreement is terminated (whether by the employee resigning or by the employer terminating the learner’s employment), the employer will be able to deduct an amount equal to a pro rata portion of the annual allowance in that year.
 
The employer is not entitled to deduct any further annual allowances or the completion allowance as the learnership agreement is terminated and the learnership not completed. Furthermore, there is no recoupment of allowances claimed should the learnership be terminated for any reason.
 
Conclusion
 
With unemployment levels increasing to over 30% in the 3^rd quarter of 2021, South Africa’s priority is ensuring its youth and community members are employable. This requires improving skills levels and ensuring that skills are relevant for current and future job opportunities.
 
To promote skills development and job creation, the learnership tax incentive encourages employers by providing them with an additional tax deduction over and above the normal allowable deductions. This additional deduction is intended to encourage job-specific training through formal learnership contracts and to encourage relevant workplace training by employers.
 
Improving the employability and employment levels of our youth will result in more of them being able to participate in the labour market, thus empowering them financially. Empowering our citizens to participate in the labour market will decrease their dependence on social grants or transfers from government.