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How to pay less tax using Section 12J

Jan 28, 2021

By Zane De Decker, MD Flyt Property Investment.

How to pay less tax using Section 12JDid you know that an investment made into a Section 12J registered fund qualifies for a 100% tax refund?

What that means, in simple terms, is that 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 and since the incentive was introduced in 2009, the incentive has stimulated R9.7 billion in investment and created 10 500 jobs. So it appears that the scheme is working.

But back to the money.

Let’s say you fit into the 45% tax bracket and decided to invest R1 million into a Section 12J-approved fund. That R1 million rand is deducted off your taxable income and therefore R450 000 will be refunded to you by SARS.

A sunset clause has been introduced, making Section 12J only available until 28 February 2021

Yes, initially you’re going to have to come up with the lump sum to invest, and pay 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.

For example, say you purchase a property for R1.8m via a Section12J fund. 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.

There is, however, one catch. In 2017, SARS placed a limit on the amount that could be invested under Section 12J: R2.5 million per annum for individuals and R5 million for companies. A sunset clause has also been introduced, making Section 12J only available until 28 February 2021.

That means investors only have one more tax season (unless the industry is successful in its rally to have the incentive extended) to benefit from the incentive.

This post was based on a press release issued on behalf of Flyt Property Investment

3 Comments

  1. Please more info icw Section 12J company, what is meant through a 12J Company Fund. Seeing we only have a short period of time in which registration may be needed?

    Reply
  2. You’re right. There isn’t much time left. However it can be very confusing to understand this type of investment option.
    Would you have a link to a list of all registered Section 12J companies in South Africa and how to go about understanding what it ‘practically” means to invest with them?

    Reply

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