Investment into Section 12J venture capital vehicles has seen a huge uptake over the last twenty-four months as investors have realised the extraordinary tax incentive offered by SARS.
Section 12J of the income Tax Act provides South African taxpayers with a 100% tax deduction on the amount invested. This allows South African taxpayers (individual, company or trust) to claim tax relief of up to 45% on their investment amount.
Recent amendments to the legislation have resulted in these investments becoming more popular with 78 out of the 161 Section 12J companies registered in the last two years.
Anuva Investments, South Africa’s first Section 12J company, have announced the launch of a new fund available, allowing for diversification from traditional 12J private equity into the property sector via a hospitality fund created in partnership with Cape-based property developer Flyt Property Investment.
The 12J tax incentive introduced by SARS in 2009 was intended to stimulate growth in the SMME sector and ultimately lead to job creation. Historically, these investments have been limited to venture capital and, in some cases, business rescue opportunities with traditional property investments not qualifying as VCCs. Investing in a qualifying 12J company requires that the company holds assets that qualify under the Act; the only property assets that qualify are those that create jobs in the hospitality sector, for example, hotels or managed accommodation properties.
The Flyt and Anuva partnership, launched as Flyt Hospitality Fund, will issues shares in selected qualifying property developments. Two Cape Town developments have been structured into the fund which issues shares giving the holder access to all the benefits of the property. A minimum investment of R1 million is required and can be made via private investor, trust, stokvel, investment syndicate or company. The investment is locked for a period of five years without any disbursements, after which shareholders can opt to remain in the structure and depending on performance, benefit from a passive income via quarterly dividend payouts.
Speaking at the launch of the fund, Zane De Decker, Managing Director of Flyt Property Investment, said: “Part of our success has been our ability to identify a good opportunity, so when 12 J hit our radar, we immediately pursued the structure as an option for our investors.”
He also quoted impressive statistics from The Western Cape Government, confirming that for every R1 million invested in 12J structures, 4.1 jobs have been created in South Africa. “It’s important for us to achieve returns in every sense. Not only do we want to achieve attractive financial yields, but it is also essential that we uplift local businesses, improve the built environment and facilitate positive progress in the areas we work in.”
Also at the launch was Neill Hobbs, CEO and founder of Anuva Investments, who said that their investment mandate with Flyt Property Investment is to invest in quality hospitality opportunities.
“Together with the team at Flyt, our strategy is to find outstanding opportunities in the property sector: good quality, strategically located properties with a focus on sectional-title serviced apartments and student accommodation. We have worked closely with Zane De Decker and are optimistic at the potential this diversification will offer our investors.”