The Section 12J of the Income Tax Act - introduced more than a decade ago - has been axed by Treasury in the 2021 Budget for "failing to achieved its objectives of developing small business, generating economic activity, and creating jobs" and instead providing "significant tax deductions to wealthy taxpayers".
READ: Budget 2021 | Households under pressure can put R2.2bn tax relief to good use
12J encourages South African taxpayers to invest in local companies and receive a 100% tax deduction of the value of their investment. The investor receives a share certificate and a tax certificate, allowing the invested amount to be deducted from the investor’s taxable income, in the year the investment is made.
While some R11bn had been invested into South African opportunities via Section 12J - Treasury found that the incentive fell short with only about 37% of 12J venture companies creating new jobs after receiving funding. Treasury's decision was also based on findings that "the majority of the S12J investments were low risk", offering returns that would attract funding irrespective.
Zane de Decker, MD of Cape-based Flyt Investment says Finance Minister, Tito Mboweni’s announcement that Section 12J will not be extended does not come as a surprise.
"We were expecting as much and in the past few months, we’ve been working extensively on developing our investment product to accommodate investors who will still have until 30 June 2021 to make the most of the tax incentive.
SEE: Tax incentive opens up property-buying options in Cape Town’s inner city
What is surprising though, says Decker, is that the incentive was not extended until February, next year, "which would make much more sense when it comes to financial and investment planning, as investors may not have a true indication of their investment capabilities for the 2022 tax year, this June".
Investment into Section 12J sector is thus expected to see significant uptake, ahead of the tax deadline and investors waking up to the incentive as it nears its cut-off date.
"We’ve experienced huge interest in our loan product, which we expect to be well received again before June, as the bridging finance aspect will give investors the breathing space they need before their next tax filing season.
Current projects include the WINK Aparthotel is 100% subscribed, Quivertree in Stellenbosch is currently on 70%) and we’ve therefore lined up quality qualifying property projects, making us well-positioned to take subscriptions.
Decker says the Blended Partnership Fund combines investment into Quivertree and Eaton Square via investment into the fund via shares. In partnership with specialist Section 12J managers, Anuva Investments, 50 shares have been made available at R1million each.
READ: Trendy new Stellenbosch development from R979k offers investors hefty tax break
The numbers:
- Of the R1million required, Flyt Property Investment will contribute 65% on the investor’s behalf in partnership, leaving R350 000 (35%) required from the investor.
- A 5% deposit is required to secure the investment; however, qualifying taxpayers can request a 100% loan for the 35%
"In essence, investors can make an R1 million Section 12J investment by putting down only R350 000, which will be returned to individuals via their SARS tax refund (subject to investor’s own tax rate). The company has also incorporated a bridging loan facility for qualifying investors who would like to borrow the 35% portion while waiting for the SARS refund."
Want all the latest property news and curated hot property listings sent directly to your inbox? Register for Property24’s Hot Properties, Lifestyle and Weekly Property Trends newsletters or follow us on Twitter, Instagram or Facebook.
Print
