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The Employment Tax Incentive Act excludes these three types of employers from claiming ETI benefits. Are you one of them?

by , 02 December 2014
The Employment Tax Incentive Act (ETI Act), or the 'youth wage subsidy', came into effect for all payroll periods as of 1 January 2014. It aims to help you bear the cost of offering employment to the unemployed youth of South Africa.

Your business can qualify for the ETI if you registered, as an employer, for PAYE with SARS, and have a PAYE number.

But there are certain companies that don't qualify for ETI even if they fulfil the above criteria.

If you're one of them, you can't benefit from the ETI. So first find out if the Act excludes you, before you invest money in creating a youth employment programme.

To help you do this, here are the three excluded employers...

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Attention Finance and Payroll managers
Do you know:
How you can use the Employment Tax Incentive Act to your advantage?
What the criteria is to qualify for a tax incentive so you can pay less tax?
How to legally claim a tax incentive when you hire temporary employees?
How to claim a tax incentive on learnerships?
How to manage the risks and penalties involved with the Employment Tax Incentive Act?

Three types of employers are automatically excluded from the ETI

  1. National, provincial or local government;
  2. All public entities listed in Schedule 2 or 3 of the Public Finance Management Act, unless the Minister of Finance specifically allows an entity to claim the ETI; and
  3. A municipal entity as per Section 1 of the Local Government Municipal Systems Act.
As you can see, most employers involved in the private sector can benefit from the ETI.
But, even if you can claim ETI benefits, you must be very careful when it comes to the ETI Act. If you're not, SARS could disqualify your business and you could lose out on the ETI entirely!

Here are the rules you must follow if you qualify for ETI to ensure you don't end up disqualified 

The ETI Act gives clear rules about when SARS will disqualify you and stop you from claiming any ETI benefit. 
For example, there's a R30 000 penalty and automatically disqualification if the authorities find out you displaced an employee to benefit from the ETI. 
But there's also the danger that your disqualification could be at SARS' discretion. 
You see, SARS applies certain rules monthly. This means even though you may qualify for the ETI in one month, SARS could disqualify you in the next month if you break any of the rules. 
Let's see what these rules are.
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Know the Law on Avoiding Tax: You Are Now Presumed GUILTY
Dealing with SARS and acing your SARS Audit
SARS has been dealt a better hand in dealing with you if you try to avoid tax. SARS knows where it stands. The question is: do you?
Do you plan on obtaining an 'innocent' tax benefit? If your main or only reason for entering into any arrangement is to receive a tax benefit, SARS will brand you guilty of avoiding tax...and guess who has to prove their innocence… YOU!

Follow these two rules you to avoid disqualification from the ETI

Rule #1: You must pay to train or educate staff you claim the ETI for as directed by the Minister of Finance.
Rule #2: Don't unfairly fire or retrench existing staff and replace them with employees who qualify for the ETI (displacing staff). SARS will disqualify you immediately for this.
SARS will keep a close eye on your business if you retrench employees for operational reasons. If it sees you suddenly hire new employees that qualify for ETI into those same positions, it will disqualify you from the programme immediately. 
So if you don't qualify for the ETI, there's nothing you can do. But if you do qualify, ensure you follow the rules so you don't end up losing your ETI benefits.
For more about the Employment Tax Incentive Act, check out the Practical Tax Loose Leaf Service

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