Treasury elects not to extends the Section 12J sunset clause

Jonty Sacks, Partner at Jaltech Fund Managers

The Section 12J sunset clause has been a trending topic for Section 12J fund managers and taxpayers in the build-up to the Finance Minister's budget speech. The relevance is that when Section 12J was introduced in 2009, Treasury included a clause that would see to the incentive coming to an end at the end of June 2021.

The sunset clause was inserted in the legislation in order to provide Treasury with an opportunity to assess the effectiveness of the incentive and then to decide whether or not to extend the incentive. 

On review of the Section 12J industry’s survey, over 15 000 jobs have been created and supported, and over R4.5 billion has been invested into more than 300 SMMEs in South Africa. One would have assumed that these statistics would have supported an extension of the incentive. However, in the Finance Minister’s budget speech, Treasury has determined that: 

“the incentive has not adequately achieved its objectives. The incentive has instead provided a generous tax deduction to wealthy taxpayers and most support has gone to low-risk ventures that would have attracted funding without the incentive. The incentive will therefore not be extended beyond its current sunset date of 30 June 2021.” 

The non-extension has no material impact on taxpayers who have taken up the incentive or those who intend investing before the end of June 2021. This simply means that taxpayers have a limited window, before the end of February for the 2021 tax year end and then again before the end of June for the 2022 tax year end to take advantage of the “generous tax deduction”.