The metaphorical train, which will officially be leaving the station on June 30, will see the end of Section 12J’s sunset clause, marking the successful end to this tax incentive in South Africa.
Thankfully, SARS has given South African Taxpayers one last chance to take advantage of this incredible tax exemption by offering them the opportunity to write-off up to R2,5 million in taxable income for the 2022 tax year. Eager to learn more? Flyt Property Investment, a Cape-based property development and investment team unpacks all you need to know.
What is Section 12J?
There’s no question that South Africa has had an embittered battle with unemployment. To help combat the steadily increasing unemployment rate, the National Treasury and SARS sought to pump some much-needed funds into small and medium-sized businesses, with the aim of facilitating job creation. In turn, the exemption provides investors with the opportunity to receive an immediate tax deduction equal to 100% of the amount they invested. Through the Section 12J initiative, approximately R10.34 billion has found its way to smaller businesses, creating between 9 000 to 10 500 jobs, with investors reaping the benefits of this tax exemption too.
For example, assuming you’re an employee paying PAYE: If you earn R1 million in a given tax year and invest R1 Million in a 12J company in the same tax year, SARS will see your income theoretically reducing from R1 Million to R0. You will then be due for a tax refund on the R1 million, which they have already paid, +-R300 000 refunds. The more you earn, the more tax you would have paid and the more beneficial the incentive, with top taxpayers saving 45% of their investment.
Sprinkling some Flyt Magic
In an effort to solve the 12J property puzzle, Flyt Property Investment’s overarching intention was to enable investors the option to purchase units in various developments, while receiving a healthy tax deduction. Simply put, they wanted to create an opportunity for SARS to finance up to 45% of the property purchase for the investor, allowing them to receive a huge reduction in the finance required for the investment, with the knock-on effect for these developers being higher sales tempos and the ability to realise profits from their core business – property development.
It’s been a busy few years for the Flyt team. What started as an exploratory exercise in 2019 to see how they could combine what historically has been their “bread and butter”- residential/hospitality property development – with SARS’s Section 12J tax incentive (which was at that point a newly found revelation) has since morphed into a flourishing joint venture with Anuva Investments, one of first and most trusted Section 12J Venture Capital Companies with a solid seven-year track record.
Since the launch of Flyt Select, Partnership and Hospitality Funds in early 2020, in what has been unprecedented conditions for the property market, Flyt has started a bridging finance business, sold out all four developments that they have taken to market (some 295 units) and formed relationships with some 400 new individual investors, saving them in excess of R200 mil in tax in the process.
As proud as Flyt is of the progress they have made to date, very little of it would have been possible without what Anuva Investments’ CEO (Neill Hobbs) describes as “hands down the best tax-saving opportunity imaginable”.
What came first? The chicken or the egg?
Still with us? If you’ve been following along and you’re able to grasp the logic behind using SARS to fund your property investment, what’s stopping you?
There’s one large barrier that you may need to overcome – money. Before you can use your tax to invest in property, you’ll first need to invest your taxable income, i.e. R1 million in cash before the deadline, which will help you receive your R300 000 tax refund deduction. Unfortunately, not everyone has this amount of cash lying around.
Add Flyt 12J (Pty) Ltd to your investment arsenal. A registered credit provider and a Flyt Property Investment subsidiary, Flyt 12J provides investors with bridging loans to invest into the 12J company, helping to facilitate their tax deductions before the deadline of June 30, 2021, and solve the problem of needing to have the money upfront. Once the investor receives the tax refund from SARS, these funds along with the home loan go towards purchasing the unit – what a game-changer!
So what’s the catch?
- The property cannot be lived in by the investors for the first 5 years
- The property needs to be furnished* and managed on a short-term basis
Thankfully, all Flyt units come fully furnished and they offer an on-site operator in place at all of their developments
Can’t get a home loan, then find a partner.
A fair number of taxpayers, although in the higher tax bracket, have been reluctant or unable to get a home loan of their own due to various commitments. This conundrum birthed the concept of what is now the fully-fledged, R150mil strong, Flyt Partnership Fund.
The premise of the Partnership fund is simple:
- You, the investor, bring 35% of the investment to the table
- Flyt brings the balance (65%) as a long-term loan (Flyt acts as the bank)
- You get the benefit of 100% as a tax deduction (getting up to 45% back as a refund)
- The total 100% goes towards buying properties that are managed in the fund
- Flyt and the investor share the profits on the sale of the property in five years’ time.
The net effect is that the investors simply bring their tax to the table as their contribution, tax that they would ordinarily never be able to access and use to invest alongside Flyt as an aligned partner in quality hospitality property investments. Don’t have your 35% upfront? Don’t worry, you can borrow it from Flyt and repay it from your tax refund.
So kill the suspense, what’s on offer?
Upper East Side
Direct ownership in Upper East Side, a mixed-use precinct on Brickfield Road, Salt River, is now on offer to property investors. 183 studio and one-bedroom sectional title units are available through the Flyt Select Fund, from R734 000 to R3 534 000.
Investors will also enjoy a five-year guaranteed return of 7.5% (after all property-related expenses). The first three years is underpinned by a head lease with Spear Reit Limited, with years 4-5 being guaranteed by Anuva Investments. The units will continue to be fully managed by Multi Rooms Management. Owners will also benefit from seven days’ own use of their unit at up to a 30% discount on accommodation rates throughout the year.
One Thibault, the tallest residential development in Cape Town
This internationally award-winning modernist masterpiece dares to stand apart, ascending diagonally into the city skyline, carving out fresh perspectives of the Harbour to the east and Table Mountain to the west.
Flyt Property Investment presents the unique opportunity to invest in One Thibault through the Flyt Select Fund, offering bespoke luxury apartments ranging in size from floors 15 through 20, starting from R895 000.
The 180 serviced apartments are fully managed by an on-site team, Wink Aparthotels. Investors have access to a host of benefits, including:
- Furnished apartments at no additional cost
- Quality tenants who “tick all the boxes”
- Lower financial risk
- Higher returns due to managed serviced apartments solution
- No admin
1st Year Rental Guarantee of 6%
The Admiral Beach Hotel and Apartments – Struisbaai
Invest in the southernmost tip of the African continent, where the Atlantic and Indian oceans meet. As a desirable location, few destinations are more spectacular than the Overberg area, including Struisbaai and Cape Agulhas, being the southernmost tip of Africa, and home to the Admiral Beach Project.
Apartments will consist of 1-, 2- and 3-bedroom units, with direct access to the beach. Investment into The Admiral will be available to investors via the Flyt Select Fund.
Flyt Partnership 2022
Following on from their hugely successful, SOLD OUT Flyt Partnership Fund, they’re launching the Flyt Partnership 2022 Fund. This new property investment fund is aimed at making sure you don’t miss out on the final Section 12J opportunity by enabling you to bank your 2022 income or company tax in our Section 12J fund and wait in the wings for the next exceptional Flyt property investment to become available. However, here are a few points to remember:
- Subscriptions will be capped at R300 million
A 5% deposit secures a R1 million tax deduction.
About Flyt Property Investment
Flyt Property Investment is a Cape-based property development and investment team committed to finding opportunities that challenge the status quo. They work in the public domain on spaces that have the potential to change things. They never shy away from complex problems and believe in finding the solutions from within, unlocking opportunities through innovation, taking a different angle, thinking intelligently and laterally.
Flyt buy, develop and add value to property through joint venture and independent projects. They maximise return by completing rigorous project evaluations upfront, by co-investing in work they believe in, and by closely managing their business. They currently have five projects actively on the go and in their pipeline is a very exciting one. They’ve stuck to their recipe of creating wealth for their shareholders, all the while contributing positively to the built environment and progressive landscape of the Cape.
- Website: http://flytproperty.co.za
- Telephone: +27 21 795 251045
- Email: [email protected]
- Facebook: https://www.facebook.com/flytpropertyinvestment/
- Instagram: https://www.instagram.com/flytpropertyinvestment/
- LinkedIn: https://www.linkedin.com/company/flyt-property-investment/