"My accountant told me that I need to be careful of Employment Tax Incentive (“ETI”) schemes and that SARS will no longer permit me to claim ETI for students that form part of an “ETI Scheme. Is this the case?"
In the last few years many ETI structures or schemes, also called “ETI Schemes” have come to the fore promising clients significant BEE points at no effective cost – in fact, some of these schemes promised that clients will make money from the scheme or project. In most cases large amounts of students were signed up to ensure a maximum ETI benefit to the clients. Some of these students were placed on new training programs 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.
On 6 July 2021 SARS published a binding ruling (“Ruling”) on an ETI scheme that has been doing the rounds. In the facts stated in the ruling 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. SARS ruled that no student will meet the definition of “Employee” in section 1(1) of the ETI Act. One can deduce from the Ruling that SARS is of the opinion that the purpose of ETI is to promote workplace exposure for the youth and not merely theoretical education.
We understand that the definition of “employee” in the ETI Act is in the process of being amended to assist with clarity on whether a person is deemed an employee or a student. It seems that if it is found in 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.
The interesting question that arises from this Ruling, that was not specifically mentioned in the facts, is whether persons on learnerships are 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 program, 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 matters. Where a host employer is present, the learner is not directly involved in the work environment of the primary employer.
What is clear is that SARS has set its sights on ETI claims and that companies must carefully consider whether to claim ETI where an educational component is involved where ETI is claimed. We trust that the matter will be clarified once the definition of “Employee” as stated in the ETI Act is successfully amended.
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