Tax deductions attract investors to new Fairtree Capital Hospitality Fund

Joe Bester

Section 12J of the Income Tax Act was created specifically to encourage taxpayers to invest in local small and medium sized enterprises. True to their entrepreneurial spirit, Fairtree Capital has launched the Fairtree Capital Hospitality Fund( “the Fund”), a South African investment vehicle that enables investors to participate in the fast growing hospitality sector whilst enjoying legislated tax breaks.

According to Portfolio Manager, Joe Bester the tax deductions, which can be significant, on this Fund make it an extremely attractive investment proposition.

The tax incentivized Venture Capital Company (VCC) was implemented to give small and medium-sized enterprises access to equity finance.

“Taxpayers who invest in a registered VCC are entitled to a 100% tax deduction on monies invested as the entire amount invested in the Fund is deductible from the investor’s taxable income in the year that it is made. As long as the investment is held for five years, this will result in a potential tax saving of up to 45% for individuals, 45% for trusts, and 28% for companies (being the reduction in marginal taxes payable) on their investment,” said Bester.

“We are also the only asset management company launching a Fund that takes advantage of the 12J tax advantage.” 

The Fund’s strategy is to buy hotels significantly below their replacement value, but are positioned to benefit from the growth of international and local tourism.  The Fund will develop its investments into efficiently structured hotels, which operate at optimum capacity. 

“The Fund uses its expertise, in association with its hotel management partners, to reposition and restructure hotels for growth and to capitalise on the changing accommodation market,” he said. 

“We see this as a real opportunity to identify properties that will benefit from Fairtree Capital’s investment and operational expertise whilst potentially delivering a decent alternative return to investors,” added Bester.

With a minimum investment of R500 000, Fairtree Capital investors will acquire an equity share in a private limited company, benefitting from one of the lowest management fees of all listed 12J structures.

“We are targeting Fund growth of CPI + 15% per annum, which together with the Fund’s low correlation with traditional asset classes, we believe will be an attractive proposition to investors.” said Bester.