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
It’s party time! How Quicket became the place to get a ticket

It’s party time! How Quicket became the place to get a ticket

The Money Show’s Bruce Whitfield interviews James Tagg, co-founder and director at Quicket.

Even upmarket boutiques offer lay-bys! Here’s what you need to know…

Even upmarket boutiques offer lay-bys! Here’s what you need to know…

Lay-by has taken off as a payment option in the last year or two, says consumer journalist Wendy Knowler.

Tom Moyane’s lawyer to represent Peter Moyo in battle with Old Mutual

Tom Moyane’s lawyer to represent Peter Moyo in battle with Old Mutual

Bruce Whitfield interviews Eric Mabuza who will represent the dismissed Old Mutual CEO in a court challenge against his firing.

'We don’t need more plans! We have plans coming out of every orifice!'

'We don’t need more plans! We have plans coming out of every orifice!'

Bruce Whitfield interviews political analyst Lukhona Mnguni, Bonang Mohale (BLSA) and Dr Adrian Saville (Cannon Asset Managers).

I’ve never seen anything like this! – Simon Brown on Old Mutual vs Peter Moyo

I’ve never seen anything like this! – Simon Brown on Old Mutual vs Peter Moyo

The Money Show’s Bruce Whitfield interviews Simon Brown, Financial Educator at Just One Lap.

The fascinating story of WeBuyCars (and why Naspers is pumping billions into it)

The fascinating story of WeBuyCars (and why Naspers is pumping billions into it)

The Money Show’s Bruce Whitfield interviews WeBuyCars founder Faan van der Walt for his weekly "ShapeShifter" feature.

Popular articles
[LISTEN] Jacques Pauw and NB Publishers issued with summons for R35m

[LISTEN] Jacques Pauw and NB Publishers issued with summons for R35m

Former State Security Agency director general Arthur Fraser says he has suffered repuational damage because of Pauw's book.

Man thanks right-to-die activist Sean Davison for helping cousin take own life

Man thanks right-to-die activist Sean Davison for helping cousin take own life

On Wednesday the Dignity SA founder was sentenced to three years house arrest after entering a plea and sentencing agreement.

Smooth operator - How to avoid getting caught out by telesales agents

Smooth operator - How to avoid getting caught out by telesales agents

Consumer journalist Wendy Knowler shares her advice on how best to deal with the calls.

[VIDEO] DA's Van Damme accuses family of racism, V&A Waterfront apologises

[VIDEO] DA's Van Damme accuses family of racism, V&A Waterfront apologises

The Democratic Alliance MP claims she was subjected to a racist tirade at Cape Town's V&A Waterfront and wants action taken.

Court orders Gupta-linked Trillian to pay back R600 million to Eskom

Court orders Gupta-linked Trillian to pay back R600 million to Eskom

It also ordered the company to pay for all the costs of the application. Bruce Whitfield interviews EWN’s Clement Manyathela.

Fight continues for family of 11 evicted from Paarl wine farm

Fight continues for family of 11 evicted from Paarl wine farm

On May 7, the Land Claims Court heard an application to have the eviction of Nomabongo Sweetness May and her family rescinded.

Investigation underway into cause of Cape Town hotel fire

Investigation underway into cause of Cape Town hotel fire

Staff and guests at Durbanville's Ruslamere hotel were evacuated while firefighters battled the blaze on Tuesday morning.

[WATCH] Internet blown away by best way ever to peel garlic!

[WATCH] Internet blown away by best way ever to peel garlic!

Khabazela shares tweets and Facebook posts that have gone viral.

BP could be fined millions for illegally building 17 petrol stations

BP could be fined millions for illegally building 17 petrol stations

The case against international petroleum giant was brought by environmental group Uzani Environmental Advocacy.