How to do good and reduce your tax bill – legally

JONTY SACKS

Section 12J is relatively simple. Are you paying tax? If yes, carry on reading. Do you have to pay South African Revenue Service (SARS) capital gains tax this year? If yes, carry on reading. Section 12J is one of the few legal ways to reduce your tax bill before 28 February 2019. In fact, Helen Zille promoted Section 12J this week as a legal way to participate in a tax revolt.

Let me explain Section 12J briefly with the following scenario: Alon earns R3 million, and he would normally have to pay income tax on the R3 million. However, Alon is tax savvy, and invests R1 million into a Section 12J company. These are companies that the government has earmarked as major contributors to future economic growth, and they need cash injections.

If Alon invests the R1 million before 28 February 2019, SARS will allow him to reduce his tax bill by R1 million. This means that because Alon has been paying income tax every month, he will be able to claim up to R450 000 back from SARS as a refund.

Yes, you didn’t misread that. It is true. If you are paying tax each month, and if you invest in a Section 12J company before 28 February, SARS will write you a cheque, based on your marginal tax bracket, of up to 45% of the amount, which you invest. Don’t believe me? Well, we expect more than R2 billion to be invested just this year in Section 12J companies, which will bring the total invested amount to about R5.5 billion over the past few years.

Why are Jews still investing in South Africa? One of the reasons is because they are still South African taxpayers. Why isn’t everyone investing in Section 12J companies? Either they don’t pay enough tax, or they aren’t fully aware of how Section 12J works.

Why aren’t you investing in Section 12J? Ask yourself that question quickly, because we are only weeks away from 28 February, and time is running out to reduce your tax bill.

• Jonty Sacks is a partner at Jaltech, a specialist in Section 12J company formation and administration.