The Treasury’s decision to cancel Section 12J investments is highly disappointing. It was introduced by SA’s government with a view to creating jobs and developing small businesses, thereby promoting SA as an investment destination. In fact, Section 12J stemmed capital flight out of the country.
The idea was that an investor would enjoy tax incentives if they invested in applicable businesses instead of sending their money to somewhere else. These businesses were then required to create jobs for a minimum period of five years.
Section 12J was one of the few mechanisms available to convince high net worth individuals to invest long-term capital in South Africa. This would have grown the tax base when capital flight is battering the country. Research by the Section 12J Association in 2021 actually showed that these schemes could create 45 000 jobs in the next 5 years.
But the Treasury is concerned that the scheme takes too much potential tax away from the country while the country battles with a low tax base. The Treasury has argued that the Section 12J scheme relies too much on low risk and “guaranteed return” ventures which could attract funding even without the incentive. These businesses are property-backed businesses such as hotels and asset rental businesses.
But the point is that the section is gone now. We now need to look at what SARS will do in reaction. Property Flash readers need to note 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 5-year holding period of the investment. So, get your ducks in order, Section 12J investors.