WHAT IS SECTION 12J?
Treasury is incentivising South African taxpayers to invest in the local economy, via a tax deduction on the investment amount, provided the investment is made into an approved Section 12J Venture Capital Company (Zimbali Capital).
The benefit to the investor for making the investment in Zimbali Capital, is a return on the investor’s full investment and a tax deduction on the amount invested.
By way of illustration, if an investor (an individual in the highest tax bracket) invests R1 million in Zimbali Capital, the investor will receive a tax credit of up to R450 000 at the end of his/her financial year. What this means is that an investor will receive a return on 100% of their investment but only have exposure on 55% of their original investment amount.
|Initial investment||R1 000 000||R1 000 000|
|Tax relief (in the tax year of initial investment)||(R450 000) *||(R280 000)|
|Net investment (risk capital)||R550 000||R720 000|
*assumes individual is in the highest marginal tax bracket
The tax relief can be carried over where the investor is a company, and in circumstances where the investor is an individual or trust, the tax relief (in most instances) is limited to the tax year of investment and can therefore not be carried over.
What are the limitations associated with Section 12J?
A South African taxpayer must be invested for a minimum period of 5 years in order to retain the tax deduction. If the taxpayer exits early then the taxpayer would have to pay back his/her tax. When the taxpayer exits, the taxpayer’s base cost is reduced to zero.