While much of the focus on tax-based Section 12J (S12J) investments –
borne out of a 2008 South African Budget Review observation that access to
equity finance represents one of the main challenges to the economic growth of
small and medium-sized businesses – has for obvious reasons been on the
business sector, it has now been shown that there are considerable benefits to
be derived in the medical sector.
In short, any investment made of up to R2.5 million per individual and
R5 million for a company is fully tax deductible in the year in which the
investment is made. This means that for individuals paying the highest rate of
tax (45%) they basically get to invest 55% of their own money – and instead of
paying the other 45% to SARS, they get to keep it in the S12J investment.
Investors who invest into a SARS approved section 12J company can claim
a full tax deduction on their investment and use that capital to invest into
asset backed businesses which generate returns as originally intended by
Medical professionals/practices, for example, can now use this
opportunity to invest in an S12J fund that rents specialised medical equipment
to the profession and associated establishments. This allows the investors in
these specific instances to generate attractive returns while reducing the
amount of tax they need to pay.
“The S12J deduction,” in Sunstone Capital’s Fund Manager Avi Gordon’s
opinion, “has the most value when done by an individual who has attracted the
highest marginal tax rate in that year. S12J is therefore an effective way to
deal with large capital gains or other tax events that take place in the year
of assessment and,” he adds, “any ASA taxpayer can benefit from a S12J tax
deduction i.e. individuals, companies and trusts.”
For medical professionals, Sunstone Capital has shown that S12J provides
a chance to, firstly, invest in their own profession, and secondly, not only
“get great returns” but reduce their tax liability in the year of investment.
SOURCE: *Article prepared on behalf of Sunstone Capital