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A date with the tax man for any Section 12J investor is a satisfying rendezvous. The morning after SMS is reason for many a refreshing smile; who would’ve thought we’d ever be saying “Thank You, SARS”? We’ve had a flurry of new, delighted investors who invested in our Section 12J offerings before 29 Feb this year contacting us, citing very pleasing tax return calculations, many reporting a few extra 0000s on this year’s refund.

If you’re not one of those ‘in the know’ – investment into a Section 12J registered fund qualifies for a 100% tax refund. So, in simple terms, 100% of what you invest is deducted from your taxable income by SARS via the Section 12J scheme.  This is one of government’s effective efforts to stimulate the SMME sector while simultaneously creating jobs. Any amounts invested into venture capital 12J companies receive a share certificate together with a tax certificate, allowing the invested amount to be deducted from the investor’s taxable income, in the year that the investment is made.

The Section 12J Industry Association recently reported that, pre-COVID, the incentive has since its introduction in 2009 stimulated R9.7 billion in investment and created 10 500 jobs. At Flyt, we know for sure that our investors’ funds have not only created jobs, but, more importantly, kept people working in these hard-hitting times. Kudos to SARS, the scheme is working!

But back to the money. Let’s say you fit into the 45% tax bracket and decided to invest R1million into a Section 12J approved fund. That R1million rand is deducted off your taxable income and therefore R450 000 will be refunded to you by SARS.  Yes, initially you’re going to have to come up with the lump sum to invest and pay over your tax as you would normally do (or you can chat to us about our Partnership Fund – a solution to the capital outlay problem), but once the year is up, you’ll be one of those receiving the extra zeros on your SARS refund.  If we put it in the context of a Flyt property purchase: if you purchase a unit via a Section12J fund – let’s work on a purchase price of R1.8m – you can be refunded by SARS as much as 45% of your investment amount (depending on your tax bracket). On a R1.8m purchase, that’s R810k saving as you walk through the door. 

Sounds like there must be a catch somewhere, I agree, but if we have to find one, it’s this: In 2017 SARS limited, a previously uncapped, investment to R2.5 million per annum for individuals and R5million for companies. A sunset clause has also been introduced, making Section 12J only available until 30 June 2021. That means investors only have 2 more tax seasons (unless the industry is successful in its rally to have the incentive extended) to benefit from the incentive.

Invest in rousing South African companies instead of paying tax – where do I sign, you say?

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WHAT IS SECTION 12

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.

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