Can you claim ETI for students?

“In a recent conversation with our accountant, I was informed that SARS will no longer permit claims of Employment Tax Incentive (ETI) tax benefits for students. We have been considering placing some of our workers on learnerships and possibly also claiming ETI for them, but we are concerned as to whether this would still be possible. Do you have any clarification as to what the position now is?”

Over the years, many companies have made use of ETI schemes to receive tax benefits afforded by ETI. However, as you have noted correctly, SARS recently issued a ruling which may change the fate of these ETI schemes by holding that a student cannot be an employee for ETI purposes.

Often in ETI schemes students were signed-up to ensure a maximum ETI benefit to the clients. Some of these students were placed on new training programmes and some were current students at various training institutions. In most instances the students never received any remuneration, but were claimed to be employees of the sponsor company.

In its July 2021 ruling, SARS held that in a scheme were the students in question were inter alia not expected to perform any work for the company, did not receive any remuneration and were mainly involved with theoretical studies at a campus, such studends did not meet the definition of “Employee” in section 1(1) of the ETI Act. One can deduct from this ruling that SARS is of the opinion that the purpose of ETI is to promote workplace exposure for the youth and not merely a theoretical education.

That said, it is rumoured that the definition of “Employee” in the ETI Act is being considered for amendment to provide greater clarity on whether a person is deemed an employee or a student. From the ruling it appears that at present if found on the facts that a person is mainly involved with studies rather than work then a company will not be eligible to claim ETI for that person.

Not specifically addressed in the ruling however is the position as regards learnerships and whether such persons would be seen as employees or students for purposes of ETI. Learnerships are unique in the sense that the theoretical and workplace components are integrated in the same programme, an employment relationship must be present and the learner must receive monthly remuneration. The standard practice of using host employers as part of the learnership programme in many Sector-Education and Training Authority (SETA) funded and unfunded projects over the years further complicates the issue. In such cases where a host employer is present, the learner is not directly involved in the work environment of the primary employer, adding to the confusion as to whether the learner is a student or an employee.

For the present and until greater clarity is provided by SARS, possibly through its amendment of the definition of “Employee”, it would in our opinion be prudent to rather assume that even learnerships may not qualify for ETI tax benefits and employers should not claim ETI for such until the position has been clarified.

October 12, 2021
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