by Steve Hughes
For as long as there have been taxes, there have been people trying to avoid paying them and for almost as long, there have been people cleverly finding ways in which to pay less tax.
There is a significant difference between tax avoidance and tax evasion though. One is the financial Philosopher’s Stone, the other will land you in jail. So how does one navigate the ever-mercurial waters of paying as little tax as possible, legally?
With this Billion Rand question, we introduce you to the new VIVIDPRIVÉ Platinum Wealth solution. Over the coming weeks and months, we’ll be sharing tips and solutions to help you join the world’s super rich get richer and to introduce to you smart wealth management solutions, to help you protect your investments, plan for the future and create more global wealth and mobility.
WHO WANTS TO BE A DRAGON?
We’ve all seen the Dragon’s Den TV show where successful investors are presented with opportunities to invest into start-up companies in exchange for equity. Well, in the UK, those investments are tax-deductible under the Enterprise Investment Scheme (EIS).
Back in the good ol’ days, whilst he was still running SARS, Pravin Gordhan saw this concept as a great way to stimulate the local economy and brought the model across to South Africa where it was added to the Income Tax Act (Section 12J to be specific). He knew that for every R1 of tax invested into the economy, it equated to R4 return for the economy down the line.
As attractive as it is to have venture capital investments offset against one’s taxable income, this does mean that one still is risking a portion of their own money in this venture, should the VCC collapse. But all hope is not lost as there is one 12J company that goes one step further and removes this personal risk portion.
When one invests into this specific 12J company, they boost the initial investment using a very clever ‘value add’ which leaves you with an investment that is more than double what your initial investment was. This value-adding means that your investment and the resulting IT3c certificate is no longer reducing your income tax by the invested amount. It is now reducing your TAX liability by the investment amount.
Just to repeat that, because you may have missed it…
This company’s offering allows you to invest only what you would owe SARS in income tax without risking any of your own capital, as is the case with traditional Section 12J offerings.
This model has been assessed by SARS without problem so while it does sound “too good to be true”, rest assured that it has passed scrutiny and inspection and is providing lot of benefit to a lot of happy investors, every day.
Sadly SARS has just implemented a ‘sunset clause’ on the 12J VCC investment model of 30 June 2021 when this model’s efficacy will be re-assessed. Whether they choose to continue, modify, or scrap this amazing concept, it is a possibility, sadly, so there is a small window of opportunity left to invest in this model before June. As the saying goes, ‘make hay while the sun shines’.
GLOBAL EXPANSION
Let’s face it, no matter where you look, more and more people are wanting to move assets and, in a lot of cases, themselves, abroad. For those that are tied to South Africa (for whatever reason), all is not lost.
With the handful of tax-friendly destinations, coupled with asset-protecting fiduciary structures, one can set up a Trust structure abroad and, if properly structured with the correct supplementary financial instruments, that Trust can enjoy international currency-based investment growth that pays a very low tax rate, or when you’ve really chosen your destination well, no tax at all.
Of course, there are certain things that you need to keep in mind when it comes to offshore structures and moving money internationally, but with the right guidance, this can be one of the most rewarding moves you could make.
As I’ve come to know about the globally successful, it is not what you have, but what you do with what you have that makes all the difference. Strategy coupled with knowledge are a superpower.
SO, ARE YOU PAYING MORE TAX THAN YOU NEED TO?
So, when all is said and done, there is a lot more that can be done to reduce the tax that one pays beyond the traditional ‘Retirement Annuity’ or the ‘medical aid’ contributions. The question is, are you getting all the guidance that you need to ensure more of your money goes to you?
If you’d like to find out more on these topics or any of the other VIVIDPRIVÉ Platinum Wealth solutions, please feel free to get in touch via info@vividprive.com and our Wealth Experts will get in touch with you straight away. We’ve got a multitude of progressive wealth management solutions to share.
