The Tax Shop director, Bennie Groenewald, advised that medical asset leasing companies may benefit from Section 12J. This is of particular importance to funds that rent specialised medical equipment to the profession and associated establishments.
The Tax Shop is the largest accounting and tax franchise in SA with more than 70 outlets operating in Southern Africa. Groenewald explained: “In 2009 the South African government introduced a venture capital company (“VCC”) scheme which has become a popular tax shielding mechanism for taxpayers. Taxpayers who invest in VCCs may claim a deduction on the amount invested in acquiring venture capital shares, provided that all the requirements of Section 12J have been complied with. There are no special tax benefits for VCCs and standard tax rules apply.”
Groenewald said the VCC tax incentive scheme is designed to encourage individual and corporate investors to invest in a range of higher-risk SME trading companies, given the possibility of significantly reducing capital gains tax or income tax, due before February 28.
Since 1 January 2009, taxpayers have been able to claim amounts invested in VCC shares, as a deduction from income. 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. A further attraction is that such deduction will not be subject to recoupment if the VCC shares are held for longer than five years.
Needless to say, section 12J investments have been growing in popularity for their tax saving benefits but the VCC regime is however subject to a limited window of opportunity and the upfront income tax relief will only apply to VCC shares acquired on or before 30 June 2021, unless extended by government.
One of the main challenges to the growth of small and medium-sized businesses is access to equity finance and schemes like these, help to attract capital and grow business which in turn promotes economic growth, pointed out by Groenewald.
Nowadays, investors are in a position to review a much larger pool of investments from high-growth venture capital companies, capital preservation investments, such as hospitality developments or student accommodation, funds which generate semi-annual dividends, others where the returns are backed by renewable energy assets, to a fund that rents specialised medical equipment to the profession and associated establishments.
Today there are more than 100 registered Section 12J companies in South Africa.
Groenewald’s advice is that after investing in retirement annuities and pension funds, Section 12J is an ideal way to significantly reduce a taxpayer’s tax liability. “But don’t get caught up in investing simply because there is an attractive tax benefit associated. Ignore the tax benefit when considering a fund’s commercial potential and select the 12J company based on the underlying investment fundamentals.
more information, visit The Tax Shop: www. https://www.taxshopservices.co.za
Enquiries: The Tax Shop
Director, Bennie Groenewald