NATIONAL NEWS - With the tax year end just more than a month away, there has been a growing marketing effort aimed at luring investors to Section 12J venture capital and private equity investments.
The Section 12J tax incentive is a government initiative aimed at assisting small and medium-sized businesses to access equity finance in the hope of creating jobs and boosting economic activity.
Investors can write off 100% of an investment into an approved 12J vehicle against their taxable income. Against the background of meaningful tax hikes and growing concerns about wastage of taxpayer money, this may seem like a no-brainer – effectively it means that investors can get ‘up to 45% immediate tax relief’.
And with the JSE moving sideways for more than four years, investors may easily be swayed by targeted returns of ‘40% per year or more’ in some of these funds.
But while some of these investments may be suitable for a specific type of investor, interested parties should make sure they understand the risks, tax benefit and liquidity constraints involved. There are now more than 100 registered Section 12J companies in South Africa, which have attracted more than R3.6 billion in total.
Dino Zuccollo, fund manager at Westbrooke Alternative Asset Management and founder member of the Section 12J Association of South Africa, says there is a spectrum of different quality asset managers and investments in the market.
While Section 12J offers a fantastic tax break, it is not good enough to just invest for the tax, he says. Investors should invest with an experienced manager with a track record of success, and need to do a due diligence on the manager to get comfort around their ability to deliver.