Page 10 - SHB 2020 Issue 1

FEATURE – Section 12J Profile’s Stock Exchange Handbook: 2020 – Issue 1

Capitalising on

capital gains tax with

Section 12J

If you are dealing with an astute financial advisor, it is very “Section 12J has created an opportunity for a number of
likely that steps are or have been taken to diversify your my clients and personally to shield a capital gains tax
investment portfolio offshore. In doing so, advisors are event following the disposal of a share portfolio.
often faced with the predicament as to which of their
By way of example, if a client elects to sell R10 000 000 of
clients’ investments to dispose of to create liquidity to
his/her listed share portfolio and as a result has a capital
invest offshore. One clear option is the down weighting of
gain of R5 000 000 (less his/her annual exemption of
a client’s local listed equity portfolio, however, the capital
R40 000), 40% (R2 000 000) must be included in his/her
gain tax event for many advisors is a deterrent.
taxable income. The net effect is that the client would have
By balancing a client’s equity portfolio disposal with a a tax liability of approximately R900 000.
partial investment in a Section 12J investment, financial
The client now has an option to invest approximately
advisors may start to consider their clients’ liquidity options
R2 000 000 in a Section 12J investment and reduce his/her
significantly differently.
tax liability to zero. This would leave the client with
The upfront benefit of investing in a Section 12J R8 000 000 to invest offshore, R2 000 000 invested onshore
investment is that the investor (provisional taxpayer or not) and no capital gains tax liability, resulting in a saving of
is entitled to deduct 100% of the investment against R900 000 which would have been paid to SARS. This
his/her taxable income. As capital gains fall within a example doesn’t just apply to listed equity but to the sale of
taxpayer’s taxable income, financial advisors are able to any asset which would result in a capital gains tax event.”
balance a disposal of a listed equity, unit trust portfolio, One must be mindful that a Section 12J investment is not
property and/or business interest with a Section 12J comparable from a risk profile to a listed equity investment,
investment in order to reduce the capital gains tax liability
however, if the client’s intention is to exit investments, a
(or payment to SARS) by as much as R1 125 000 (for an
Section 12J investment has its place in terms of shielding
individual investor). the tax liability and potentially earning a return from asset
In following a discussion with Michael Westcott, CEO of exposure that meets the client’s risk appetite.
Absolut Wealth Management, Michael explained that,
Jonty Sacks – Partner at Jaltech Fund Managers

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