Section 12J funds will be gearing up for a flurry of interest as investors into the tax incentive realise it may be now or never to make the most of the tax break offered. Not only are investors clamouring to benefit from the tax deduction before financial year end on 28 February 2021, but this may very well be the penultimate tax season in which SARS will make the incentive available.
Section 12J has matured into a viable alternative investment vehicle as tax-payers and investors have in more recent years grasped the opportunity since its low-key introduction in 2009. From its fundamental aim of boosting the SMME sector by incentivising investors with a handsome tax break for raising venture capital, many specialists have refined their offering and, in so doing, opened the net wider for more tax-payers to benefit.
Specialist investment property development firm Flyt Property Investment introduced their Section 12J offering in 2019, allowing property investors to make the most of the 100% tax break via their hospitality property fund. Currently, the fund facilitates investment into the 66-unit mixed-use development Eaton Square in Diep River, Cape Town, which is close to being fully subscribed, Quivertree Apartments (a student accommodation development in Stellenbosch) and Wink, a 30-Room boutique Aparthotel in Cape Town’s Foreshore. All developments benefit from a rental pool structure, and onsite management.
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. 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.
In their recent webinar, Ryan Flowers, fund manager at Flyt Property, offered: “Our Flyt Select Fund gives you a massive tax break and you become the owner of a pre-approved investment unit. You can finance it yourself or get up to 100% funding if approved. By using a Section 12J company for your investment you can get up to 45% tax back.”
Essentially, SARS will finance up to 45% of the investment (depending on the investor’s marginal tax rate or whether investment is made via an individual, trusts or company). Investors become shareholders and are issued a tax certificate to submit with the annual tax return. Flyt have introduced a Partnership Fund that provides bridging finance to investors to facilitate their 100% tax refund if they do not have the cash themselves. “To date, Flyt has saved its investors over R50million in tax which they have been able to invest into quality hospitality properties, while growing the economy and creating jobs at the same time,” concluded Flowers.
According to the12J Association of South Africa, as at Feb 2020, R9.3billion has been invested into South African opportunities via Section 12J and, unless SARS extends the cut-off date, the incentive is set to expire in June of this year (2021). It’s a case of get in, while you can!