The Taxation Laws Amendment Act of 2016 (Act No. 15 of 2016), which was promulgated on 19 January 2017, contains improvements to the following employment tax incentives:
- tax exemption for bursaries and scholarships provided by employers;
- the learnership allowance; and
- the Employment Tax Incentive (ETI)
Exemption for employer-provided bursaries and scholarships
Section 10(1)(q) of the Income Tax Act contains a tax exemption for all bona fide bursaries or scholarships granted by employers to employees or relatives of qualifying employees, subject to certain monetary limits and other requirements.
The Amendment Act announced earlier this month has increased the monetary limits for bursaries and scholarships granted to the relatives of qualifying employees. If a bursary or scholarship is awarded to a relative of the employee, the tax exemption will apply if the employee’s remuneration does not exceed R400 000 (whereas the amount previously was R250 000) during the relevant tax year.
In addition, the amount of the bursary or scholarship will be exempted from tax up to a limit of:
- R15 000 (previously R10 000) for studies from Grade R to 12 (including qualifications in NQF levels 1 to 4), and
- R40 000 (previously R30 000) for qualifications in NQF levels 5 to 10.
These amendments are deemed to have come into operation on 1 March 2016 and apply in respect of years of assessment commencing on or after that date.
Section 12H of the Income Tax Act allows an employer to claim an additional deduction for registered learnership agreements. Before the amendment, qualifying learnership agreements had to be entered into before 1 October 2016. The Amendment Act has extended the learnership allowance to all agreements entered into before 31 March 2022.
In order to target this incentive to training learners without basic to intermediate qualifications, the value of the allowances has been revised as follows:
- For learners with qualifications in NQF level 1 to 6, the incentive increased from R30 000 to R40 000;
- For learners with a disability the allowance increased from R50 000 to R60 000;
- For learners with qualifications in NQF Level 7 or higher, the incentives have been decreased from R30 000 to R20 000.
- For learners with a disability the allowance remained at R50 000 for NQF level 7 or higher.
These amendments are deemed to have come into operation on 1 October 2016 and apply in respect of learnership agreements entered into on or after that date.
Employment Tax Incentive (ETI)
The ETI is an incentive aimed at encouraging employers to employ young work seekers. It reduces the employers’ costs of hiring young people through a cost-sharing mechanism with government, by allowing the employer to reduce the amount of PAYE payable while leaving the salary received by the employee unaffected.
It was implemented with effect from 1 January 2014, and was set to expire on 31 December 2016. The Amendment Act has extended the ETI for another two years until 28 February 2019.
For further information or for assistance in understanding whether these amendments are relevant to your business, please contact our tax team.