Specialist alternative investment fund management company, Anuva Investments, warns South Africans that SARS will recoup any funds invested via the Section 12J tax incentive if the investment is not specified in a deceased person’s will or if the investor emigrates within the five-year holding period of the investment.
Section 12J of the Income Tax Act was introduced in 2009 to encourage South African taxpayers to invest in local companies and receive a 100% tax deduction of the value of their investments. Although the incentive is no longer available, Section 12J investors received a share certificate together with a tax certificate, allowing the invested amounts to be deducted from the investors’ taxable incomes during the year that the investments were made.
James Rothmann, CFO of Anuva Investments, cites two separate incidences in recent months where families of investors who have passed away, have been left to repay SARS a recoupment of the full Section 12J investment.
“During the five-year investment period, SARS will view death or emigration as a deemed sale of the shares and therefore, unless you specifically state that you have left your Section 12J investment to your surviving spouse in your will, or in the case of emigration, have tax efficient structures in place, SARS will recoup the tax benefit”.
Morné Janse van Rensberg, tax specialist in succession and estate planning and MD of Bannister Trust, says that these cases should serve as a warning to investors as they highlight the importance of succession and estate planning, especially when it comes to investments.
“Your will must stipulate which of your assets are awarded to whom, and how the residue of your estate should be distributed”.
He also says that although most people are aware of their total assets or commit these to a list, this list is often not shared with their families, tax practitioners, or appointed executors which causes severe delays when administering their estates as additional time has to be spent ensuring that all assets are accounted for and reported to the Master of the High Court.
“In our experience, although a Letter of Wishes can provide your executor with guidance of your intentions, it is not legally binding. Therefore, should you want certain heirs to receive specific assets from your estate; these should be explicitly mentioned in your will”.
Rothmann cautions that the same rule applies to Section 12J invested taxpayers who emigrate before the five-year investment term is complete saying these investors should consult their tax practitioners to establish the most effective process to follow.
“Our sister company, Hobbs Sinclair, recently assisted a client via a Section 42 transfer of assets on a tax neutral basis, allowing the client to retain the initial tax benefit”, he said. “Section 12J provided investors an attractive tax-saving vehicle and it is important for those investors to shield their benefits. By developing an effective tax strategy, taxpayers are not powerless when managing their tax matters either personally or for their families and businesses. The key is to be proactive. Meet with your tax practitioners and estate planning professionals; use their knowledge to help you minimise or, better still, eliminate your tax burden for the current tax and future tax years.”