Section 12J Technical Notes
Qualifying Shares
Qualifying Shares are equity shares in Qualifying Companies.
A Qualifying Company must meet the following Section 12J criteria:
- Is unlisted, South African tax resident;
- has less than 70% of its equity shares held, directly or indirectly, by 670 ventures and group companies;
- does not invest in immovable property (other than a trade carried on as a hotel keeper);
- trades mainly in South Africa; and
- does not trade in the financial services, gambling, liquor, tobacco, arms or ammunition industries.
Asset Allocation
The purpose of the tax benefit is to encourage equity investment in small and medium-sized SA companies. To receive and maintain these tax benefits, the following are some of the major rules of Section 12J that must be adhered to:
- After the expiry of 36 months from the date of the first issue at least 80% of the investments made must have been made to acquire Qualifying Shares in Qualifying Companies (each with a gross asset value below R 50 million at time of investment).
- No more than 20% of any proceeds of issue of Venture Capital Shares may be utilised to acquire Qualifying Shares in any one Qualifying Company.
The manager will ensure that 670 Ventures continuously adhere to these rules.
Investment Horizon
Investors should remain invested for a minimum of five years if they wish to avoid recoupment. If an investor sells their Section 12J investment within the five years, the upfront tax deduction is recovered.
Tax Deductibility
670 Ventures is registered with SARS as a Venture Capital Company in terms of Section 12J of the Income Tax Act (Section 12J). This entitles investors to deduct 100% of their investment in Venture Capital Shares issued against taxable income, providing up to 45% upfront tax relief for individuals and trusts, or 28% for corporate investors. A certificate to substantiate a claim for tax deduction is provided, investors simply quote 670 Venture’s reference number when completing their tax returns.
