I've been looking at ways to reduce my donations to the Nkandla Fund (SARS income tax)…
I have no objection to pay tax - when the government that receives that money makes use of it responsibly. But that's not the case at this stage.
And by putting off paying tax (legally) I can get my money to work for me faster than when I give nearly half of that away to the tax man.
Now instead of me telling you about all the usual ways - RA's, property investment tax deductions etc., there's a little known yet SUPER effective way to lower your tax bill.
In fact - you could possibly even get ALL the tax you paid in a year back!
What you need to do to get back up to a year’s worth of taxes
In order to spur economic growth and increase investments in small, rapidly growing companies the government gives you a tax break.
It is called Section 12J of the Income Tax Act.
In short, Section 12J gives you the ability to claim 100% of your investment in a qualifying Venture Capital company as a deduction against your income tax.
That means you can get a possible 41% of your investment back from SARS in tax refunds.
Moreover, if your investment is large enough it could be as big as your entire tax bill for a year.
Best of all, there is NO lifetime limit on how much you can claim.
However, there is a cut-off date.
The window for investment is only till 2021. So, if you don’t take advantage of this benefit before then – you lose out.
What exactly is a Section 12J venture capital investment?
You need to invest in a Venture Capital Fund that has been SARS approved.
A venture capital fund is similar to a unit trust in the way it is operated, it is also FSB regulated. The main difference is what it invests in.
A unit trust would invest in JSE listed companies.
A venture capital fund invests in young, fast growing companies. This could be IT startup’s, Fintech companies, junior miners or hospitality businesses. But they won’t be listed on the JSE, they will probably still be owner operated. And the venture capital company will target annual returns of 20%, 30% and even 40% a year.
The beauty is that you’re not investing in any single start-up. But in a fund, managed by highly skilled managers investing in a portfolio of start-ups.
Francois Joubert built his property empire using other people's money.
He bought his first property when he was a broke student with less than R20,000 in the bank using this method, and he hasn't looked back since.
Today, at just 27 years old, his property portfolio is already worth over R3.585 million.
So where do you find these companies – and can anyone invest?
You will see there’s a short summary of the different funds and the minimum investment you would need to make.
This is probably the toughest bit though.
All of these funds require you to invest AT LEAST R100,000.
And you will need to do so for a minimum period of 5 years to get the SARS tax benefits without needing to pay anything back.
But before you bail on me… There are a couple of ways I believe you can effectively invest in these companies – even if you don’t think you have this much cash…
You could have cash to invest in funds like these – and not even realise it!
A lot of people when they leave one job for another have a pension fund that is transferred to a preservation fund.
When you change jobs you can elect to have a portion or all of your built up pension money to be paid out.
So – this is a great opportunity for you to have a portion paid out – and invest it in a Section 12J company.
I got the money for my investment in another way. You see, I have a portfolio of investment properties.
I paid off the debt on two properties much faster than required – and then used cash out of my access bond to invest in the Section 12J investment.
So how much should you invest?
Well, in my opinion 5% - 8% of your portfolio is a safe option.
So if your retirement assets are sitting at R1 million – it won’t be an option yet. But once you reach the R1.5 million mark you should consider putting R100,000 or a bit more into a section 12J investment.
There’s the tax benefit – which already makes the investment awesome.
And then there’s the possibility of growing your capital MUCH FASTER than the typical JSE listed company can…
Here’s to unleashing real value