Section 12J’s tax benefits

Over the past two years Section 12J investments have gained a lot of attention due to their attractive tax benefits. Essentially, the entire amount invested into a Section 12J venture capital company (VCC) is tax deductible in the year it’s made; that deduction is permanent if the investment is held for five years.

However, because Section 12J VCCs invest into emerging companies, if a fund is correctly structured and targets black-owned businesses, it is possible that companies could get empowerment credits by using these vehicles.

“If a company invests into a Section 12J fund, and that fund invests into qualifying small businesses, the investing company will receive credit for the empowerment spend. We have received an opinion from a BEE rating firm that if the investment is into a qualifying entity, the company will not only receive their points in year one, but every year they hold the investment they will get credit for 70% of their spend,” Jonty Sacks of Jaltech said.

This could be a huge benefit to companies currently writing off their enterprise or supplier development spending as a donation or an expense.

“These companies are spending the money anyway.

“But if they use a Section 12J vehicle, they not only get a tax rebate, but they also end up with an investment that can generate returns.”

What is even more compelling is that it is possible for companies to use a Section 12J vehicle to continue to support the businesses they are targeting.

As Neill Hobbs of Anuva Investments explains, the VCC would be structured in such a way that whatever the investing company put in, gave it no more than 49% of the shares.

“The remaining 51%, or more, would be held by the black-owned target company.”“