Finance

Property investment firm provides a waiting room for Section 12J opportunities

Cape-based investment property specialists, Flyt Property Investment, have made investment into hospitality property accessible for future projects via their Section 12J finance-facility fund, the Flyt Partnership 2022 fund. Subscription to the fund will provide investors access to the Section 12J tax-break before the 30 June cut-off, and allow them to park the funds while they wait for new projects to come on board.

The Section 12J tax incentive, which expires on 30 June 2021, could very well see South African investors suffering the “you don’t know what you’ve got, until it’s gone” blues, as last-minute realisations seem to have hit the investment arena. Investors eager to make use of the final opportunity SARS is affording taxpayers are looking to sign on any dotted Section 12J line, as the 100% tax deduction is the latest must-have item in any up-to-date investment portfolio.

Flyt Property Investment’s Ryan Flowers

Described by specialist Section 12J firm Anuva Investment’s Neill Hobbs as “hands down the best tax-saving opportunity imaginable”, the Section 12J incentive was introduced by SARS and treasury in 2009, as a means to boost investment into small-to-medium-sized enterprises and, in doing so, stimulate the economy and improve job creation. The incentive initially received little attention, as it seemed limited to the extremely wealthy and out-of-reach for average investors. However, as experts began to realise the nature and merits of the opportunity, so too did smart portfolio and investment managers and, over the last 8 years, the Section 12J sector has developed some attractive investment products.  In response, property and Section 12J specialists married the handsome tax deduction with clever hospitality-suited property ownership and a new 12J asset class caught the eye of traditional investors.

However, at the eleventh hour, many Section 12J funds are pulling out all the stops to attract investors, and the scurry for last-minute offerings might result in an “anything goes” scenario, as fund managers hustle for attractive options. Ryan Flowers, Fund Manager at Flyt Property Investment, warns that investors should tread carefully as they shop for 12J investments, and make sure they are confident in the fund manager and happy with their underlying investment. The firm have sold out of their initial Section 12J hospitality property investment options leading up to the 2021 tax season deadline and have since received considerable interest in their ancillary tranche of property ownership via 12J at Cape Town’s One Thibault and The Upper East Side hotel apartments in the Woodstock area.

Flowers explains that the popularity of their offering was due largely to the finance facility offered through their Flyt Partnership Fund, which was fully subscribed and sold out of 3 developments by SARS’s February deadline. The Flyt R190 million-strong Partnership Fund provided investors with the funds to invest upfront while they waited for their tax refund. “The problem with any Section 12J investment is that you need the cash upfront to invest in order to receive the tax certificate and then the tax refund,” he points out. During a recent webinar Flowers announced that due to demand from current investors the firm has launched a 2022 Partnership Fund. “The Flyt Partnership Fund 2022 is aimed at making sure investors don’t miss out on the final Section 12J tax rebate, with a simple 5% deposit while they wait for the next Flyt project to come onboard. We enable qualifying investors to finance the portion of their 2021 income or company tax in our Section 12J fund and wait in the wings for the next exceptional Flyt property investment to become available, essentially providing a very easy way to make a 12J investment while acting as a tax cushion by shielding investors from their next tax contribution, without rushing in,” he stated.

According to the firm the Partnership Fund has, to date, saved investors R60 million in tax which has been used to acquire hospitality properties. Subscriptions to the 2022 fund will be capped at R300 million, and investors can contribute via their R2.5 million allowance for individuals or R5 million company allowance.

About Flyt Property Investment

Flyt Property Investment is a Cape-based property development and investment team committed to finding exceptional opportunities in the property investment arena.

Armed with an ability to unlock above-average potential, this young, dynamic and industrious team have cemented themselves as expert project and investment managers who challenge the norm through innovation, creative vision, lateral thinking and smart decision-making.

The Flyt portfolio backs up their well-earned reputation, with successful SOLD OUT projects in Cape Town that include Eaton Square in Diep River, WINK Aparthotels on the Foreshore and their hugely popular student accommodation development, Quivertree in Stellenbosch.

Selling 155 units within a matter of months leading up to the 2021 tax deadline, the Flyt team have emerged as leaders in the investment property development space with a number of exciting new projects in the wings. These projects have been specifically structured for the final opportunity for investors to benefit via the Section 12J incentive, which is due to expire on 30 June 2021.

About Anuva Investments

One of the country’s first and most established section 12J funds, with an outstanding track record since inception, Anuva Investments is an FSB-regulated and FAIS Act-compliant Venture Capital Company, formed in 2014 by a combined team of tax and investment specialists. Anuva invests in small- and medium-sized companies where the opportunity exists to significantly enhance profitability through a management involvement process. Higher-risk investments are balanced by investments into well-established businesses with proven profitability and stable cash flows.

The positive cash flows that result from a well-structured VCC investment are matchless.  The investor can potentially receive a full tax deduction on the funds invested as well as substantial dividends from the investment on an ongoing basis.  An investment in 12J carries no personal tax risk for the investor.

About Section 12J

Section 12J of The Income Tax Act provides South African taxpayers with a 100% tax liability deduction on the amount invested into a qualifying Section 12J fund. This allows South African taxpayers (individual, company or trust) to claim tax relief of up to 45% on the investment amount.

The Section 12J investment opportunity is an incentive created by government aimed at boosting much-needed job creation in South Africa. Section 12J companies provide an investment vehicle that offers tax relief to a maximum of R2.5 million per investor per tax year, with a minimum investment period of five years. The investment is made in identified start-ups or existing business entities in preferred sectors of the economy with an emphasis on job creation. Tax beneficiaries invest directly in the 12J fund, which in turn invests in the identified business.

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