MyMoney Online, Small Business Focus, The Science Of ... , Evergreen Content

Pay up to 45% less tax by investing in a small business (Section 12J incentive)

Also, read the following related articles:

*How to pay less tax by writing off 100% of an investment in a small business

*How to pay up to 45% less tax (and save the SA economy while you’re at it)

For every R100 invested in a Section 12J company, an investor (individuals, companies and trusts) can reduce their tax by up to R45, making the net investment only R55.

There are more than 140 registered Section 12J companies in South Africa.

The Money Show’s Bruce Whitfield interviewed Dino Zuccollo, a fund manager at Westbrooke Alternative Asset Management, South Africa’s largest Section 12J manager.

Westbrooke Alternative Asset Management is responsible for almost half of the capital invested in Section 12J funds.

Zuccollo answered 12 of the most common questions investors ask about the Section 12J tax incentive.

How does Section 12J help me to save tax?

Individuals, companies and trusts can benefit from up to 45% immediate tax relief, reducing the cost of the investment while providing downside protection and enhancing overall returns.

Investments must be held for at least five years.

The Section 12J asset class is particularly attractive to those taxpayers who have incurred capital gains tax, as the 40% inclusion rate for individuals allows investors to invest less than the total cash realised on a capital gains event.

However, a Section 12J investment carries a base cost of zero and therefore on exit from the investment, the investor will be liable for capital gains tax on the full proceeds.

Is this investment right for me?

If you are a South African taxpayer, you could consider a Section 12J investment as your taxable income can be offset by this investment.

Section 12J investments range from lower risk asset-backed investments to higher risk venture capital investments, and it is, therefore, necessary to assess your risk appetite.

What are the risks?

As with any private equity style investment, an investment in a Section 12J company carries risk.

It’s essential, therefore, to assess the investment strategy of the Section 12J company to ensure you understand the associated investment risk as well as the expertise and track record of the asset manager.

Which Section 12J investment should I pick?

This is dependent on your desired risk/reward profile.

Investors may also elect to invest in diversified Section 12J portfolios to spread risk.

What is the minimum investment?

From what can be seen in the market, Section 12J investments start at around R100 000.

What returns can I expect?

This depends on what fund you have invested in and the skill of the managers.

Investors in lower risk strategies can expect to earn investment returns of 15% to 25% and investors in higher-risk strategies can potentially expect investment returns of 40% per year or more.

Section 12J is considered a private equity style investment which carries different levels of risk depending on the underlying investment strategy and there is the potential to lose your initial investment.

Can I use debt or gearing to invest in a Section12J company?

Yes, you may utilise a loan or gearing to invest in a venture capital company as long as you comply with Section 12J(3)(a) of the Income Tax Act.

When and how do I claim my tax deduction?

An investment into an approved Section 12J company is 100% tax deductible in the tax year you invest.

Investors can claim the tax relief by either reducing their estimate of taxable income when submitting provisional tax returns or by obtaining a tax refund through the annual income tax assessment.

To benefit this year, your investment needs to be made by 28 February.

What is the annual limit per investor for investment into a Section 12J company?

There is no annual limit, but investors should not invest more than their taxable income.

What is the term of my investment?

The minimum term of the investment will be five years.

However, certain funds might carry a more extended minimum investment period.

What if I invest, and then I die or emigrate?

On death during the five year investment period, your investment will be treated as if you had sold your shares and Sars will recoup the tax benefit unless you explicitly state that you have left your Section 12J investment to your surviving spouse in your will.

Should you emigrate within the five years, your investment will be treated as if you had sold your shares and Sars will recoup the tax benefit.

What are the fees?

Fees in Section 12J investments are not legislated so check this carefully when you invest.

For more detail listen to the interview in the audio below (and scroll down for quotes from it).

It was introduced in 2009, but until 2015 nothing really happened…

Dino Zuccollo, Westbrooke Alternative Asset Management

It’s important to invest with an experienced, tried-and-tested manager…

Dino Zuccollo, Westbrooke Alternative Asset Management

There’s a minimum period, but there’s no maximum…

Dino Zuccollo, Westbrooke Alternative Asset Management

A Section12J company can be any type of business, with five exceptions…

Dino Zuccollo, Westbrooke Alternative Asset Management

We want to remove as much risk as possible… have a Section12J fund with a clear mandate… it’s able to mitigate a lot of the risk… there is liquidity risk…

Dino Zuccollo, Westbrooke Alternative Asset Management

We normally take R500 000 as a minimum investment.

Dino Zuccollo, Westbrooke Alternative Asset Management

Get the 10 most-read articles of the week from Bruce Whitfield’s The Money Show, emailed to you every Friday morning:

Subscribe to our Business Wrap Newsletter


Recommended

by NEWSROOM AI
Read More
South Africa’s economy to shrink by 23.5% in 2Q/2020 – Absa forecast

South Africa’s economy to shrink by 23.5% in 2Q/2020 – Absa forecast

Africa’s most developed economy is heading for a very cold economic winter, says Absa Senior Economist Peter Worthington.

Covid-19: Struggling to pay - or collect - the rent?

Covid-19: Struggling to pay - or collect - the rent?

The Money Show's Bruce Whitfield interviews property lawyer Julian Scher about rental payment problems caused by Covid-19.

Eskom is making the best use of the crisis - André de Ruyter, CEO

Eskom is making the best use of the crisis - André de Ruyter, CEO

The Money Show’s Bruce Whitfield interviews Eskom CEO André de Ruyter about the utility’s plans during the Covid-19 lockdown.

'If you still have a job, get rid of your debt as fast as you can'

'If you still have a job, get rid of your debt as fast as you can'

Personal finance expert Warren Ingram has advice on how to survive – or even thrive – amidst the Covid-19 outbreak.

How to pay up to 45% less tax (and save the SA economy while you’re at it)

How to pay up to 45% less tax (and save the SA economy while you’re at it)

The Money Show’s Bruce Whitfield interviews Darryn Faulds, a fund manager at Grovest Group.

How to pay less tax by writing off 100% of an investment in a small business

Want to pay less tax, and make some money? Pavlo Phitidis discusses Section 12J of the Income Tax Act.

Popular articles
COVID-19 positive cases now 1,585, nine deaths confirmed

COVID-19 positive cases now 1,585, nine deaths confirmed

As stated by the Department of Health, this is an increase of 80 from the cases reported on Friday.

Could SA student's bug-killing coating innovation be applied for Covid-19?

Could SA student's bug-killing coating innovation be applied for Covid-19?

Michael Lucas on his self-sanitising technology and why it could also play a role in a post-pandemic world against superbugs.

'No amount of provocation by community should result in law enforcement abuse'

'No amount of provocation by community should result in law enforcement abuse'

Reverend Chris Nissen says more civil society monitoring is needed to keep the volatile lockdown situation in check.

Lockdown boredom draining your kids? Four simple ways to keep them entertained

Lockdown boredom draining your kids? Four simple ways to keep them entertained

From painting without brushes to whipping up yummy snacks, Nikki Bush has the lowdown on creative adventures for the youngsters.

Gen. Viljoen 'demobilised conservative resistance to transition' - Ramaphosa

Gen. Viljoen 'demobilised conservative resistance to transition' - Ramaphosa

FF Plus founder and former defence force chief General Constand Viljoen died on Friday at the age of 86.

Internet speeds should normalise: Repairs to 2nd undersea cable completed

Internet speeds should normalise: Repairs to 2nd undersea cable completed

Post-recovery checks have been done and Wacs is back in operation.

At least seven WC schools vandalised, burgled during lockdown so far

At least seven WC schools vandalised, burgled during lockdown so far

WCED spokesperson Bronagh Hammond urges communities to be on the lookout as much as they can within shutdown regulations.

[WATCH] Journalists soldier on updating the nation during lockdown

[WATCH] Journalists soldier on updating the nation during lockdown

Frontline heroes: Eyewitness News unpacks a working day in the lives of journalists during the lockdown.

COVID-19 claims two more lives and positive cases now sit at 1,505

COVID-19 claims two more lives and positive cases now sit at 1,505

Health Minsiter Zweli Mkhize briefed the nation from the Khayelitsha Hospital in the Western Cape on Friday afternoon.

Soul singer Bill Withers dies

Soul singer Bill Withers dies

According to a statement released by his family a short while ago, Withers died of heart complications.