Section 12J is a section of the Income Tax Act introduced by Treasury to incentivise South African taxpayers to invest into Section 12J Venture Capital Companies (VCC’s). Section 12J companies are companies which invest into South African small and medium sized businesses that help stimulate the economy and create jobs which South Africa desperately needs.
Who can benefit from Section 12J?
Any taxpayer who earns income or gains, taxable within the Republic of South Africa, can benefit from this tax deduction, including: individuals, companies, trusts and even deceased estates.
Why should I invest in a Section 12J investment?
What makes this investment so attractive is the fact that taxpayers can write off (deduct) 100% of their investment against their taxable income. The maximum deduction allowed per year for an individual/trust is R2 500 000 and R5 000 000 for a company. This 100% tax deduction is allowed in the same year in which the investment is made.
For a taxpayer in the top tax bracket, this means that you can save in tax owing, or earn back tax already paid, to SARS of up to 45% at the maximum marginal South African income tax rate of your investment value. In essence, if an investor in the highest tax bracket invests R1 000 000 into a Section 12J company, the investor will be able to save in tax, or claim back a tax refund, of up to R450 000.
How it works:
|No investment into a VCC||Invests R1 000 000 into a VCC|
|Income||R2 000 000||R2 000 000|
|Deductions||R0||(R1 000 000)|
|Taxable Income||R2 000 000||R1 000 000|
|Tax payable @ 45%||R900 000||R450 000|
|Taxable income||R1 000 000|
|Income tax payable||R450 000|
|Section 12J investment||R1 000 000|
|Tax break from SARS||R450 000|
|Income tax payable after Section 12J investment||R0|
Any limitations to investing in a Section 12J company?
There are two main limitations when investing in a Section 12J company (from an investor’s perspective):
- To retain the tax deduction, an investor must remain invested in the Section 12J company for a minimum period of 5 years. If the investor exists the investment before 5 years, he/she will be required to pay back up to the full tax deduction to SARS
- As soon as an investor exits the Section 12J company, his/her base cost for capital gains tax (CGT) purposes will be reduced to zero, which means that he/she will pay CGT on their original investment amount, as well as any growth on the investment.
How can I benefit from the Section 12J tax incentive?
All you need to do to benefit from the Section 12J tax incentive is to invest into Everest’s Section 12J fund, with a minimum amount of R100 000 and investment term of five to seven years.?
For more information about any of our services and how Everest Wealth can help you meet your goals, contact us at 0876548705 or firstname.lastname@example.org.