Tax Savings - Financial Year End
The S12J has been
increasing in popularity over the last 2 years, with only 30 registered funds
as at the beginning of the 2015 tax, compared to over 120 at the soon
approaching end of the 2017 tax. We have also seen the flows into S12J
increase, with one third of the current assets under management flowing into
these funds just last year.
Pro’s:
Compared to the RA, the S12J has full liquidity, with no limit on what you can invest. Currently, SARS allows whatever investment amount you want in a S12J fund, with no limits like the RA or TFSA. This is a massive benefit for those falling into the higher tax bracket. This means regardless of what you earn, you will get back your full effective tax rate back on investment. For example, if you fall in the 45% tax bracket, and you invest R1 000 000 into a S12J, you will get the full R450 000 back in that tax year. This means you will receive R1 000 000 worth of investment at a purchase price of only R550 000. S12J’s are venture capital funds, which may increase an investors overall risk profile, but when compared to listed companies, it may offer much higher returns.
Con’s:
There is one limitation to the investment into the S12J, and that is you need to hold the investment for a minimum of 5 years. This may be limiting, but the time frame is still shorter than the RA or TFSA. As stated above, the risk profile may be higher than the Unit Trust environment.
Summary:
Although the risk profile may be higher, it does not have to be. It’s a perceived risk, and one that can be managed with the right manager. The tax incentive with the S12J is much more attractive than the other two, but due to its risk profile, it may not make up the majority of an investor’s portfolio. That being said, it should not be ignored. If anything, a combination of RA and S12J would give an investor the best of both worlds, Retirement savings, and medium-term liquidity.
So, as we approach the close of the Tax year, feel free to contact your Deton Private Wealth advisor for more advice or assistance with the tax calculation, or alternatively, contact us regarding our Section 12J offering through AltCap Venture Capital.
Pro’s:
Compared to the RA, the S12J has full liquidity, with no limit on what you can invest. Currently, SARS allows whatever investment amount you want in a S12J fund, with no limits like the RA or TFSA. This is a massive benefit for those falling into the higher tax bracket. This means regardless of what you earn, you will get back your full effective tax rate back on investment. For example, if you fall in the 45% tax bracket, and you invest R1 000 000 into a S12J, you will get the full R450 000 back in that tax year. This means you will receive R1 000 000 worth of investment at a purchase price of only R550 000. S12J’s are venture capital funds, which may increase an investors overall risk profile, but when compared to listed companies, it may offer much higher returns.
Con’s:
There is one limitation to the investment into the S12J, and that is you need to hold the investment for a minimum of 5 years. This may be limiting, but the time frame is still shorter than the RA or TFSA. As stated above, the risk profile may be higher than the Unit Trust environment.
Summary:
Although the risk profile may be higher, it does not have to be. It’s a perceived risk, and one that can be managed with the right manager. The tax incentive with the S12J is much more attractive than the other two, but due to its risk profile, it may not make up the majority of an investor’s portfolio. That being said, it should not be ignored. If anything, a combination of RA and S12J would give an investor the best of both worlds, Retirement savings, and medium-term liquidity.
So, as we approach the close of the Tax year, feel free to contact your Deton Private Wealth advisor for more advice or assistance with the tax calculation, or alternatively, contact us regarding our Section 12J offering through AltCap Venture Capital.
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