“S12J” or “12J” is simply a short reference to Section 12J of the Income Tax Act 58 of 1962 (“The Act”).
“Venture Capital Company” (or “VCC”) is the type of company that is dealt with within this section.
The term Venture Capital Company is, in our view, a bit misleading as our fund is not traditional venture capital as such. However, The Act sets out what a Venture Capital Company is, how it must operate, and that investors who purchase shares are allowed to deduct 100% of their investment. The following SARS handbook is a good resource if you want to read more
Any individual, company or trust can make a 12J investment. Although there is no maximum limit to the value of investments, the 100% tax write off is limited to R2,5m per year for an individual and R5m per year for a company or trust.
Your employer will be deducting your tax each month (PAYE), which is paid directly to SARS. If you invest in our fund then your taxable income is reduced, and SARS will owe you a refund. For example: if you earn R100k per month (R1,2m per year), your annual tax is approx. R395,000. You will get out R1,2m less R395k = R805,000 p.a. after tax (about R67k per month). If you invest R1m into the fund, then your taxable income is reduced by R1m; i.e. it is now R200k. Based on R200k income, your annual tax is now only R22k, but you have in fact already paid R395k! You will therefore get a refund of R395k less R22k = R373k (SARS will pay this back to you directly).
As a provisional tax payer you must pay provisional tax in August and Feb each year. By making a 12J investment, you reduce the income on which your tax is calculated by the value of your investment, and therefore reduce the tax payable. So by investing in 12J you legally avoid having to pay the tax (whereas a salaried earner will receive a refund).
Your refund will be processed by SARS as soon as your tax returns have been filed. This typically takes place in July each year for the previous February tax year end.
If you sell your shares in the first 5 years, you will owe SARS the full tax benefit that you received upfront. So whilst it is possible to sell, we strongly discourage this as you lose all the tax benefits.
Section 12J of the Income Tax Act – the most efficient tax saving tool, provided by SARS and government that allows you to hold on to your tax cash while investing it wisely.
The section specifically aims to help the growth of small and medium sized businesses by increasing their access to equity finance. To attract investors into this typically under-funded sector, which is imperative for driving economic growth, SARS has written Section 12J into the Tax Act, which offers taxpayers a 100% tax deduction in the year of investment if they invest in SMMEs by way of subscription of shares in a Section 12J Venture Capital Company.
Flyt’s Section 12J compliant property developments give investors the full 12J tax deduction, allowing them to put this saving/refund towards their property purchase. This means that SARS will effectively fund up to 45% of the purchase price of the property.