Finance

A legal tax haven

Drill down the monetary calculations of a Section 12J investment and it is clear that SA currently presents an excellent opportunity to earn a 100% tax break

Pic Credit:  Developed by Flyt Property Investment and ready for 12J investment, Eaton Square in Cape Town’s Diep River comprises 66 modern one- and two-bedroom boutique and co-living apartments with an outdoor entertainment deck, braai areas, a coffee shop and co-working spaces 

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Many investors and financial advisors do not fully understand Sars’ Section 12J tax incentive, which expires June 2021, says Flyt Property Investment MD Zane de Decker. “Consider this,” he says. “One hundred percent of what you invest can be deducted from your taxable income via the 12J structure.” Since the introduction of the limit to the amount that can be invested annually, an individual is still permitted to invest up to R2.5m a year (a total of R5m for 2020 and 2021). A company is limited to R5m per annum (a total of R10m for the two years). “So an entrepreneur who owns their own company can easily – and legally – enjoy a R15m tax deduction,” says De Decker.

Salary earners can also take advantage of the structure. For example, if you earn R1m per annum, you can invest the abovementioned R2.5m per annum (a total of R5m). By doing so you create a tax loss that will shield the next R5m of your salary. In other words, you will pay no tax for the next five years. Sars will reimburse your monthly tax deductions when you submit your tax return.

LIMITED OPPORTUNITY

“When our clients catch on to this tax haven window, they look in all sorts of places for some money to invest,” says De Decker. “Flyt has developed its Section 12J product to such an extent that it offers clients who do not have the money available an option to borrow the funds. The tax deduction or reimbursement will take care of a large portion of the repayment, after which income derived from the investment can be used to pay off the remainder.

“Instead of coming up with expensive ideas of how to avoid paying tax, why not just find a decent Section12J fund and shield it?” he says.

Many HNWIs invest their money offshore in tax havens such as the Bahamas, but what does it really mean to send your hard-earned cash to an island holiday destination? “You would probably be investing in a random company or fund you know little about that yields a low ROI and attracts handsome setup costs and ongoing management fees – all somewhere exotic you’re hoping to visit one day,” De Decker says.

However, the aim of Section 12J is to stimulate investment in our economy with the goal of creating jobs. Any South African who has the chance to invest would be missing a huge opportunity to boost the economy, be part of the solution and take advantage of the short-lived tax haven status we are currently enjoying legally.

COMPLETE MANAGED SOLUTION

Real estate has always been an attractive investment to add to a portfolio. Flyt partnered with Cape Town-based Section 12J specialist Anuva Investments to offer property diversification via the Flyt Hospitality Fund, dedicated to finding exceptional opportunities in the property sector. The strategy is simple: seek out excellent opportunities in strategically located hospitality properties, with a focus on serviced sectional title apartments. “Our developments come with a complete management solution and an experienced operator,” says De Decker. “We have stuck to our recipe of creating wealth for our shareholders while contributing postively to the built environment and progressive landscape of the Western Cape.”

GET IN TOUCH

E-mail: zane@flytproperty.co.za
www.flytproperty.co.za

Another development by Flyt ready for 12J investment is Wink, a self-catering aparthotel in Cape Town’s CBD with contemporary sectional title studio apartments, all furnished and equipped; other amenities on the premises include a trendy retail space, a coffee shop and restaurant

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