BEE compliance (Part 7): The Skills Development element (continued)
The good news for estate agencies looking to not only maximizing their compliance to the Property Sector Code for B-BBEE but also contributing to transformation of the industry is that there are certain incentives available to an entity which can lessen the financial burden of complying with the skills development targets says Adrian Frewen, associate with the Phatshoane Henney Group of attorneys.
Section 12H of the Income Tax Act incentivises companies to train employees in a regulated environment enabling skills development and job creation. The incentive in terms of section 12H is a deduction consisting of an annual allowance of R40 000 for any year of assessment in which a learner is a party to a registered learnership agreement, and a further completion allowance of R40 000 during any year of assessment in which the learner successfully completes the relevant learnership. The aforementioned deductions are further increased to R60 000 for the annual allowance and R60 000 for the completion allowance for a person with disabilities.
The total deduction from taxable income is therefore R80 000 per learnership of 12 months (R120 000 in the case of a person with disabilities). The annual allowance is subject to a pro rata reduction if the learnership agreement is for a period less than a full year of assessment.
In addition to the above, any expenditure on a learnership is also deductible in terms of section 11(a) of the Income Tax Act as an expenditure incurred in the production of income.
If an estate agency company was to sponsor a learnership for an unemployed person with disabilities, the financial incentive available to the estate agency company is as follows:
Various training providers offer training solutions to unemployed learners engaged in a registered learnership in a simulated workplace environment. The average cost of such a learnership is approximately R50 000. For the duration of such learnership, the learner also receives a monthly stipend of approximately R2 500 per month. The total cost to a company is therefore R80 000 for the year. As the aforementioned cost will qualify as expenditure incurred in the production of income of the company in terms of section 11(a) of the Income Tax Act, the tax liability of the company is decreased by an amount of R22 400 (calculated at 28% (rate at which companies are taxed) x R80 000). An amount of R60 000 is further deductible in terms of the annual allowance for registering the learnership for a person with disabilities, and a further R60 000 for the successful completion thereof (as per section 12H). This means that the tax liability of the company is reduced by a further R33 600 (R120 000 x 28%). Whilst the company will incur a total expense of R80 000, the total tax saving for the company is R56 000, reducing the net cost of the learnership to only R24 000.
The same tax incentives are also available to companies who register their own employees on learnerships. The additional financial benefit to the company is that the salary of such employee is recognisable as skills development expenditure for the duration of the learnership. Assuming a non-disabled employee who earns R7 000 per month completes a registered 12 month learnership, the following calculation applies: Cost of learnership R50 000; total salary of the employee/learner for the duration of the learnership R84 000. The net cost of the learnership is only R36 400, after the section 11(a) and section 12H deductions are taken into account. Despite the net cost of only R36 400, the full R134 000 may be recognised as skills development expenditure.
Let us assume that an estate agency company has a turnover of more than R25 million per year, employs 20 employees and has a total remuneration bill of R400 000 per month. The compliance targets for such company in terms of the QSE scorecard, is as follows: total skills development expenditure for black people of R144 000; R48 000 for skills development expenditure of black women.
If the company registers one accredited 12 month learnerships, at a cost of R50 000 per learnership, for one black female employee earning R5 000 per month and one previously unemployed black man with disabilities receiving a stipend of R2 500 per month, the total expenditure and potential points will be as follows:
The total recognised skills development expenditure on black people is R190 000, of which R110 000 is on black women. The total additional expenditure to the company amounts to R130 000, however the net cost after tax deductions is only R37 600. The full 17 points will be obtained on the scorecard.
Please bear in mind that the above calculations are conditional to the entity making a profit in the applicable year, and the learnership meeting the necessary qualifying criteria. It is advisable that a B-BBEE consultant is consulted to assist with implementing proper skills development initiatives.
With only 13% of estate agents reportedly being black, estate agencies will have to look at training black practitioners to transform the sector. Ultimately, an estate agency needs to view the entire B-BBEE scorecard holistically in terms of utilising the skills development element in order to upskill current and future employees in order to ensure compliance with the Management Control and Employment Equity elements whilst simultaneously complying with the Skills Development targets.
All the prior articles can be found on the Property Professional website.
The legal requirements around B-BBEE compliance can be complicated to understand about how to go about putting it into practice. Send any questions you may have on this to email@example.com.