Johannesburg – By the end of June this year, every Section 12J investment in the country will reach its mandatory five-year maturity, triggering a capital gains tax (CGT) liability for the many investors who participated.
Section 12J was a government tax incentive introduced under the Income Tax Act that allowed South African taxpayers to invest in approved venture capital companies and deduct the full value of that investment from their taxable income in the year of investment.
It was designed to channel private capital into small and medium enterprises that struggled to raise funding through conventional means.
It attracted over R14 billion across more than 100 approved funds, directing private money into sectors including renewable energy, hospitality, student accommodation, agriculture and technology.
The incentive reached its sunset date in June 2021, but the five-year holding requirement means the last wave of investments has now reached maturity.
When investors exit, the base cost of their investment is treated as zero under the legislation.
Every rand returned attracts capital gains tax.
For a top-bracket individual taxpayer, that means paying approximately 18% of gross proceeds to SARS, even if the investment’s value has fallen.
On a R1 million investment that returned nothing above the original capital, the tax bill is R180,000.
Multiply that across thousands of investors and billions in maturing capital, and June 2026 represents one of the largest single capital gains tax events in the history of the South African retail investment market.
“Investors understood they were getting a tax break upfront, but not all of them fully understood what it would cost on the way out, particularly if the fund didn’t perform,” says Jonty Sacks, a partner at Jaltech, an alternative investments fund manager.
Three ways to reduce the bill
Investors who act before the end of the financial year can meaningfully reduce or eliminate the liability.
There are three main routes. The most effective approach is to reinvest a portion of the Section 12J proceeds into a qualifying Section 12B solar investment, which provides a tax deduction that can offset the CGT entirely.
An investor who channels a portion of their Section 12J capital into a Section 12B vehicle can reduce their CGT bill to zero, retain the balance in cash, and acquire an income-generating solar investment.
Section 42 roll-over relief offers a second option: investors can transfer their Section 12J interest into a collective investment scheme and defer the CGT obligation until that investment eventually unwinds.
The third option is a retirement annuity contribution, capped at R350 000 per year, which can shield a top-bracket taxpayer from up to R157 000 in capital gains tax.
“The right solution depends on the investor’s tax position, risk appetite, and liquidity needs, but in most cases, there is a smarter path than simply handing 18% to SARS,” says Sacks.
Jaltech has launched its Section 12J Exit Income Opportunity specifically for investors navigating this exit window.
It allocates 24% of capital to a Section 12B solar investment, generating a tax deduction sufficient to reduce most investors’ CGT liability to zero, while deploying the remaining 76% into the Jaltech Income Opportunities Fund, which provides access to South Africa’s private debt market, an asset class traditionally available only to large institutions.
The structure targets post-tax returns of 10% per annum.
A policy lesson for government
The maturity of the final Section 12J cohort also invites a broader reckoning.
The scheme demonstrated that well-structured tax incentives can mobilise private capital at scale into sectors that the government cannot fund alone, without directly drawing on the fiscus.
The decision not to renew or replace Section 12J has left that mechanism without a successor.
“Section 12J kept billions of rands in the local economy that would otherwise have gone offshore,” says Sacks.
“Government has an opportunity to learn from this because we saw that private capital can be directed toward developmental priorities through incentives, and Section 12J proved the model works.”
