Section 12 J VCC
Upfront income tax relief
An investor which subscribes for VCC Shares receives an immediate tax deduction equal to 100% of the amount invested. The relief is available provided that the investor subscribes for equity shares, as opposed to buying them second hand from other investors. The attraction of the upfront income tax relief is that it effectively reduces the cost of the investment, thereby boosting overall returns.
If the investment in Eridanus is held for 5 years, the tax benefit conferred at the date of investment will become permanent. If the shares are held for less than 5 years, the deduction is recouped in the year of the sale, effectively converting the deduction into an interest free loan from SARS.
Regardless of when the Eridanus Shares are subsequently sold, the base cost of the investment is considered to be zero for capital gain tax purposes.
No further tax relief
No special rules relate to the tax of the VCC or any of its investee companies and the normal tax rules still apply.
Any South African registered taxpayer qualifies to invest in Eridanus. After a period of 3 years after the initial investment (being August 2019), no deduction will be allowed where the taxpayer is a connected person to the VCC. (i.e. shareholder holding more than 20% of the number of the issues shares).
Where any loan or credit is used to finance the expenditure in acquiring a venture capital share and remains owing at the end of the year of assessment, the deduction is limited to the amount for which the taxpayer is deemed to be at risk on the last day of the year of assessment.