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2019

UPDATE SECTION 12J MARKET

14 Oct 2019

We would like to introduce to the Section 12J tax incentive which has been widely adopted by South Africans over the past few years. Section 12J is a part of the Income Tax Act introduced by Treasury to incentivise South African taxpayers to keep funds onshore.  

The incentive provides South African taxpayers with a tax deduction of 100% of the amount invested into a Section 12J investment. This allows any South African taxpayer (individual, company or trust) to claim a refund of up to 100% of their income tax (PAYE), and/or reduce their capital gains tax liability to zero provided the investment is made within the financial year when the tax liability accrued 

Below is a table which reflects a scenario where an investor invests R1 000 000 into a Section 12J investment. 

 

Description  

Individuals* / Trusts 

Taxable income 

R 1 000  000 

Section12J investment 

(R  1 000 000) 

Taxable income (after 12J investment) 

0 

Tax payable 

R 0 

Tax saving  

R  450 000 

*assuming the investor is in the highest tax bracket.  

 

There are two main limitations when investing in a Section 12J investment, namely: 

  1. In order to retain the tax benefit, an investor must remain invested for a minimum period of 5 years. If the investor elects to exit the investment prior to the 5-year term, the investor would be required to pay back the full tax benefit to SARS with no interest or penalties incurred. 
  2. When an investor exits the Section 12J investment, the investor’s base cost for capital gains tax (CGT) purposes will be reduced to zero. This means the investor will pay CGT on their investment amount as well as any growth on the investment. 

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