Any investment made of up to R2.5 million per individual and R5 million for a company is fully deductible in the year in which the investment is made. This means that for an individual paying the highest rate of tax (45%) they basically get to invest 55% of their own money and instead of paying the other 45% to SARS they get to keep it in the investment. If they have already paid tax to SARS this 45% can be claimed back from SARS and will be refunded within 8-10 months of the tax year end (29 Feb 2020).
How does this enhance returns?
We invest in businesses that buy and lease assets to established small to medium sized enterprises allowing them to rent the assets they need to continue growing their business in a cost effective and administratively efficient manner.
Examples of the types of assets we invest in are:
- Commercial fleet vehicles (bakkies or trucks) which are used by logistics companies or rental agencies (e.g. Avis)
- Outdoor media assets – billboards etc which are used by media companies
- Ride hail vehicles – Regular passenger vehicles that are rented out to Uber drivers.
The benefits of investing into an operating asset:
Here is a comparison between two scenarios –
- Getting a R1 million bonus, paying 450k to SARS and investing the other 550k into a unit trust targeting 10% and holding for 5 years (no dividends drawn throughout).
- Getting a R1 million bonus, not paying anything to SARS and investing the full R1 million into Sunstone Capital which is a moderate-low risk fund targeting a 7.5% dividend yield and including capital gains tax implications at the end.
|Year 1||Year 2||Year 3||Year 4||Year 5|
|Sunstone Capital||75 000||75 000||75 000||75 000||813 000|
|Unit Trust (at 10%)||885 781|
|IRR - Sunstone||18%|
|IRR - Unit Trust||10%|
NB: If you include capital gains tax implications n the unit trust calculation, the yield drops down to 8.46%
Key take home points:
- The S12J deduction has the most value when done by an individual who has attracted the highest marginal tax rate in that year
- Most S12J’s assume you are taking the 45% tax benefit and that your risk capital is only 55% (100-45%). this is what returns are based on – in the event that you are in a lower bracket it will impact your rate of return (feel free to contact us to understand the effect on investment)
- S12J is an effective way to deal with large capital gains or other tax events that take place in the year of assessment, however, investment into a S12J can’t be used for historical tax events.
- Any SA taxpayer can benefit from a S12J tax deduction (individuals, companies and trusts)
Should you wish to secure a spot in SA's first of a kind fractional share 12J offering made possible through the partnership between EasyEquities and Sunstone Capital, follow the button below.
Fund Manager - Sunstone Capital
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