20/11/2017
The SARS share option that offers a 100% tax deduction
With a R50.8 billion shortfall and concerns of a tax revolt, it is clear that South Africans are clearly becoming fed up with taxes.
For fatigued taxpayers, there is still some hope, says Neill Hobbs, founder and director of Anuva Investments.
According to Hobbs, SARS is offering a solution where you do not have to pay tax and where the money you save is put to good use for both you and the country.
“Using a concept borrowed from the UK, SARS has written Section 12J into the Tax Act, which offers taxpayers a 100% tax deduction in the year of investment if they invest in small and medium-sized enterprises (SMMEs) by way of subscription of shares in a Section 12J Venture Capital Company (VCC),” said Hobbs.
“It’s a well-established fact that one of the best ways to drive the economy and employment is through investment in SMMEs. Section 12J is targeted at just that type of investment by offering taxpayers a tax break in return for their investment,” Hobbs said.
“As a regular taxpayer, you simply have to identify a Section 12J investment vehicle (VCC) of your liking and invest with them to qualify for your tax break.”
What to look out for
While this is a relatively new opportunity, there are ways to ensure that your Section 12J is less risky, said Hobbs.
This is because a number of these tightly regulated VCC companies have already been established, he said.
“Some are focused on the true Venture Capital space, such as an investment into disruptive technology, looking for that one in ten super successful investment, while others are more risk averse and focus on saving you tax while providing a steady but predictable return on investment.”
“Here, the onus or choice belongs to the investor depending on their risk appetite. Investors must be cognisant of the 5-year investment period. If the taxpayer sells their shares prior to the 5-year period, there will be a recoupment of the tax allowance upon disposal of shares.”
However, if the shares are held for a period exceeding 5 years, only Capital Gains Tax is paid albeit off a zero base, he said.
“In practice, the concept is really working. The growing number of jobs that are being saved coupled with an extraordinary return for many investors renders 12J certainly worth careful consideration.
“Apart from the tax savings, solid return on investment is boosted by strong dividends and growth in value of the underlying investments,” he said.
Unlike a Retirement Annuity, there is also no limit to a 12J investment, said Hobbs.
“Furthermore, you can immediately receive dividends and only have to wait for five years before you get your money back.
“Included as part of a diversified portfolio, this is a remarkable opportunity for a South African taxpayer with a high taxable income to create self-interest value and as a by-product to create broader-interest value for the country.”
