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Tax-deductible investments have become increasingly popular in South Africa, particularly during February when taxpayers actively seek ways to minimize their tax obligations before the end of the fiscal year. This trend was apparent over more than a decade in the Section 12J investment era, with taxpayers collectively injecting over R10 billion into the program.
In response to the persistent power cuts experienced by the country, the government announced an enhancement to the existing Section 12B tax incentive in 2023. This move has led to a significant influx of capital into the scheme.
Understanding the Basics:
Section 12J: This incentive, now closed to new investments, focused on venture capital funds investing in qualifying SMEs across various sectors.
Section 12B: This newer investment encourages investment in renewable energy assets such as solar, which includes panels, batteries, inverters, and related equipment.
Tax Benefits:
Section 12J allowed taxpayers to reduce their taxable income by 100% of their investment amount.
Section 12B allows taxpayers to deduct 100% (for existing solar assets) or 125% (for new solar assets) of their investment against their taxable income.
Investment focus:
Section 12J provided broader exposure to various sectors. The most popular exposure offered in the market was to tech, hospitality, renewables, and asset rental.
Section 12B targets renewable energy. This allows for direct investment in the green economy and offers investors the potential for long-term sustainable returns.
Risk:
Section 12J: Generally considered higher risk due to its focus on early-stage SMEs, often with unproven track records and higher failure rates. Market risks like economic downturns could also significantly impact their performance.
Section 12B: A moderate to low-risk profile as investors gain exposure to long-term energy supply agreements.
Other Considerations:
Exit strategy: Section 12J investments typically had a fixed 5-year investment term, while Section 12B investments may have varying exit options depending on the specific underlying investment and mandate.
Liquidity: Section 12J and Section 12B investments are both generally illiquid, meaning investors can’t readily access their invested capital.
Should you be investing?
As with Section 12J, Section 12B is a tax-driven investment, and as such, investors should evaluate their tax affairs before making an investment. If an investor has a significant income tax or capital gains tax liability, then other additional factors, such as risk tolerance and investment time horizon, should be considered. Ultimately it is always advisable to seek financial advice.
Jaltech is offering taxpayers one of the last opportunities in the market to take advantage of the Section 12B tax incentive before the tax year-end and is in the final stages of raising R90 million to acquire an existing portfolio comprising more than 50 operational solar systems. This acquisition strategy adds an extra layer of reassurance for investors, as these systems are already generating electricity and have a proven track record of performance.
Taxpayers facing a significant income tax or capital gains tax liability can click here to complete Jaltech’s enquiry form, and a Jaltech representative will reach out to provide more information on this investment opportunity.
Jonty Sacks & Chris McCormick – Jaltech Fund Managers
Read also:
Unlock solar tax incentives: Secure your future in renewable investments
Section 12B: Tax-deductible Solar Investment – Deadline 20 February
Mastering Section 12B: Jaltech’s milestone with 100% capital deployment
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