Opinion: South Africa – a legal tax haven for property investors

South Africa is currently enjoying the status of a ‘Tax Haven“. This is according to Zane De Decker, MD of Flyt Property Investment.

A bold statement, I admit, and one that some might think outrageous, but if you break down the monetary calculations of a Section 12J investment, you will realise the glaring opportunity“.

I’m still quite astounded at how many investors and financial advisors don’t fully understand the workings of SARS 12J tax incentive, which incidentally has a cut-off date of June 2021“.

According to Zane, 100 per cent of what you earn can be tax deductible via the 12J structure. Since the introduction of the limit to the total amount permitted to be invested annually (those in the know were taking advantage) an individual still has the opportunity to invest R5 million (R2.5 million this year and R2.5 million in 2021) and a company is limited to R10 million (R5 million this year and R5 million next year). So, essentially, if you are an entrepreneur who owns your own company, you can easily – and legally – enjoy a R15 million tax deduction.

Salary earners, too, need to be taking advantage of the structure, he says:

Let’s say you earn R1 million per annum; you are permitted to invest R2.5 million per annum into a Section12J fund  (so a total of  R5 million investment cap over the next two years). If you invest the R5 million, you’ve created a tax loss that will shield the next R5 million of your salary. In other words, you will pay no tax for the next five years! SARS will reimburse you your monthly tax deductions when you submit your tax return.”

When our clients do finally catch on to this Tax Haven window, they’re looking in all sorts of places for some money to invest.”

“Instead of conjuring up clever and expensive ideas of how to avoid paying tax, rather just find a decent Section 12J fund and shield it?”

“I find it strange that many high net-worth individuals send their money offshore to favoured tax havens such as Isle of Man or The Bahamas. Now that sounds wonderful to be sending your hard-earned cash on an island holiday, but what does it really mean? As a start, it means you’ve probably invested in a random company or fund, that you know very little about, which yields a low ROI and attracts very handsome set-up costs and ongoing management fees. This all somewhere exotic you’re hoping to go and visit one day. “

“BUT, more importantly, we must not forget the intention of Section 12J is to stimulate investment into certain sectors of our economy with the end goal of creating jobs. Any South African investor, especially in these trying times, who has the opportunity to invest would be missing a huge opportunity to boost the economy, be a part of the solution and take complete advantage of the short-lived tax haven status we are currently legally enjoying.”

Source: Propertywheel.co.za | https://propertywheel.co.za/2020/06/opinion-south-africa-a-legal-tax-haven-for-property-investors/

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