In the current market environment, astute investors are increasingly looking at alternative asset classes. In a low return world, where uncertainty is high, finding alternative sources of return is very appealing.
In this regard, a growing number of South Africans are investing in venture capital companies that operate under Section 12J of the Income Tax Act. Speaking at the Liberty Retire Well Master Class in Johannesburg on Thursday, Malcolm Segal of Grovest said that these kinds of companies are starting to gain traction thanks to the extremely enabling legislation.
“Under Section 12J the entire amount you invest is deductible from your taxable income in the year which you invest,” Segal explained. “And a section 12J tax certificate will be issued to investors together with the share certificate when the investment is made.”
As long as you remain invested for at least five years, this tax deduction will be permanent. There is also no limit to amount one can invest in these entities.
“You would, however, want to invest an amount that would ordinarily not exceed 5% to 7% of your assets,” Segal said. “And the amount should also fall within your taxable income.”
The appeal of the tax relief is obviously greatest for those in the highest tax bracket. This is currently 41%, but may well increase to as much as 45% next year as National Treasury looks to increase tax revenues.