For the first time, South Africans are now able to invest in high-quality hospitality and student accommodation businesses whilst reducing their tax liability in the process.
South Africa’s largest Section 12J manager, Westbrooke Alternative Asset Management, looks after almost half of the capital invested in S12J funds in the country. Its latest offerings provide further opportunities to stimulate private investment in the SA economy and simultaneously reduce an investor’s tax liability.
Jonti Osher, fund manager at Westbrooke Alternative Asset Management, explains, “If you subscribe for shares in one or a combination of our funds, you will be able to deduct your full investment against your taxable income and thus reduce the amount of tax payable at the end of February 2018.”
S12J is an investment tax incentive which was introduced by SARS to boost the economy by encouraging investment into private companies of a specific size which operate in select industries. The incentive gives individuals, companies and trusts the ability to write off 100% of the investment against their taxable income in the year they invest. Therefore, investors can benefit from up to 45% immediate tax relief, reducing the cost of the investment while providing downside protection and enhancing overall returns. However, the investment must be held for at least five years.
The S12J asset class is particularly attractive to those taxpayers who have incurred capital gains tax, as the S12J deduction is available against all forms of taxable income before the close of the February tax year.
Student accommodation
Westbrooke Stac (Student Accommodation) invests alongside experienced, reputable operators who own and manage student accommodation operations situated in strategically located hotspots across South Africa, including Pretoria, Johannesburg, Cape Town and Stellenbosch. The investment aims to provide an attractive dividend stream as well as capital growth in the underlying property assets on exit. Stac aims to assist the government in promoting education by addressing the country’s bed shortage in key student hubs.
Cape Town decentralised hotel offering
Westbrooke Alto (Alternative Tourism) is a fully tax-deductible investment into a portfolio of decentralised, residential hotel properties situated in attractive suburbs across Cape Town. Guests will book these hotel properties through the use of online reservation systems such as Airbnb, Booking.com, Tripadvisor, etc. The investment aims to capture the capital growth of the hospitality property over the investment period, whilst promoting local tourism.
Rental income
In addition to the launch of the new Stac and Alto funds, Westbrooke has reopened the Westbrooke Aria (Alternative Rental Income Assets) offering, which invests in a portfolio of asset-backed rental businesses with contractual revenue streams boasting a diverse base of South African business customers. The underlying investee companies focus on providing different types of movable assets, such as vehicles and equipment, on medium and long-term operating rentals to these customers. For example, Westbrooke provides growth capital to a company that rents, services and maintains scooters used by Famous Brand franchisees.
Dino Zuccollo, fund manager at Westbrooke Alternative Asset Management, says, “Our previous investors have been successful in obtaining their tax relief, and the process has been seamless through the use of the SARS e-filing system. We are focused on protecting our clients’ money by investing in asset-backed investments, which also fulfil the mandate to stimulate investment into the SA economy. Westbrooke focuses on risk mitigation and capital preservation through asset-backed S12J investment strategies that aim to deliver attractive risk-adjusted returns.”
