MATTHEW BUCKLAND: Section 12J funds give tech start-ups a hand up
If you are in the top tax bracket, it’s an attractive option for investors with higher risk appetites and 100% tax deductible if held for five years or longer
The world of start-ups is a risky choice for an investor. But there is a clever way you can reduce that risk, and that is by investing in a government-sanctioned Section 12J (S12J) fund. The tech industry often laments that government can do more to support small business. Yes, it can do more, but here is an example where it is making a difference. S12J funds have been around for the past 10 years but have only recently gained traction in the start-up world. The attractive part about these funds is that they are 100% tax deductible if held for five years or longer. Therefore, if a taxpayer is an individual or a trust with a marginal tax rate of 45%, they can invest R1m and will only pay R550,000 (that is R1m minus tax of R450,000) for the investment. In simple terms it means your start-up investment comes in at about half the price. For companies that invest, the principle is the same, but the calculation looks different because companies are taxed at 28%. If you are in the top tax ...
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