Solar Panel Tax Incentives
Government proposes this incentive programme to encourage households and companies to invest in clean electricity generation capacity which can supplement electricity supply. These incentives are aimed at bringing additional energy capacity onto the grid and achieving energy security in the long-term.
Current Tax Incentive
Section 12B of the Income Tax Act No. 58 of 1962, as amended (the ‘Act’) regulates the current tax incentive which is allowances on assets used in generating renewable energy. As from 1 January 2016, Section 12B of the Income Tax Act was amended from a three-year (50% – 30% – 20%) accelerated depreciation allowance on renewable energy to an even quicker depreciation allowance of ONE year (100%). The available allowances are limited or restricted based on the generating capacity or nature of the said assets. As such, not all renewable energy projects qualify for an allowance and in addition only applies to assets used by a taxpayer in carrying on of a trade. Natural persons earning income from employment typically do not qualify for this allowance.
The tax incentive available for businesses to promote renewable energy would be temporarily expanded to encourage rapid private investment to alleviate the energy crisis.
The current incentive allows businesses to deduct the costs of qualifying investments over a one- or three-year period, which creates a cash flow benefit in the early years of a project.
There will be no thresholds on the size of the projects that qualify, and the incentive will be available for two years to stimulate investment in the short-term.
Businesses are able to deduct 50% of the costs in the first year, 30% in the second and 20% in the third for qualifying investments in wind, concentrated solar, hydropower below 30 megawatts (MW), biomass and photovoltaic (PV) projects above 1 MW. Investors in PV projects below 1 MW are able to deduct 100% of the cost in the first year.
Under the expanded incentive, businesses will be able to claim a 125% deduction in the first year for all renewable energy projects with no thresholds on generation capacity. The adjusted incentive will only be available for investments brought into use for the first time between 1 March 2023 and 28 February 2025.
What can Individuals claim
Individuals will be able to claim a rebate to the value of 25% of the cost of new and unused solar photovoltaic (PV) panels, up to a maximum of R15 000 per individual. The incentive will only be available for 1 year to encourage investment as soon as possible. Individuals who pay personal income tax can claim this R15 000 rebate against their tax liability. This rebate is not intended for solar installations at business premises.
Requirements to qualify for the R15 000 tax rebate
- Only new and unused solar PV panels qualify, to ensure that the capacity is in addition to what the country already has in place. The panels can be installed as part of a new system, or as an extension of an existing system.
- Only solar PV panels with a minimum capacity of 275W per panel (design output) qualify for the rebate. Other components of a system – batteries, inverters, fittings or diesel generators – and installation costs do not qualify. Portable panels will also not qualify.
- Solar PV panels must be installed at a residence that is mainly used by an individual for domestic purposes. The installation will have to be proved with a certificate of compliance in terms of the Electrical Installation Regulations, 2009 to ensure safety of the installation and compliance to electric regulations.
- The solar PV panels must form part of a system that is connected to the mains distribution of the private residence.
- The rebate applies to qualifying solar PV panels that are brought into use for the first time in the period from 1 March 2023 to 29 February 2024
Individuals will be able to claim the rebate if they have:
- A VAT invoice that indicates the cost of the solar PV panels separately from other items, along with proof of payment.
- Certificate of Compliance evidencing that the solar PV panels were brought into use for the first time in the period from 1 March 2023 to 29 February 2024.
Taxpayers will be able to claim the rebate against their assessed tax payments. There is no ownership limitation for the incentive, so installations by landlords or renters would be eligible, but only the party that pays for the solar panels can claim the rebate.
Diesel generators are often used as emergency back-up but it is not a sustainable solution to generate additional power. They increase demand for fuel / diesel and have negative environmental impacts. While an inverter and batteries are required to use solar panels, inverters and batteries can be operated without solar panels – in which case they offer no additional capacity to the system. The focus on solar PV panels is to get as much additional generation capacity as possible – and recognises that government will have to focus on a partial rebate of the components that are most directly linked to generation. This is why installation costs are not included either.
Sectional Titles / Body Corporates
If occupants are enabled to install their own panels, then the tax incentive applies as for all other individuals. A body corporate will not be able to claim this incentive. It is not clear whether many body corporates will be purchasing solar installations instead of using leasing or other options to avoid up-front costs for members. Government will be consulting on this aspect. If there is widespread interest in body corporates purchasing and installing solar panels, then payment (e.g special levies) for solar installations levied from the occupants would have to indicate the cost of the solar panels separately – as would be the case for any other claimant. The applicable Certificate of Compliance data would also have to be shared with SARS. Because there would be some adjustments to ensure that the right people could claim the right amounts, there will be consultation to determine the required approach and documentation.
There will be no recoupment if you sell your house after having benefitted from this incentive as the solar panels will likely remain fixed to the house and used by the following owner – still enabling an expansion in generation. There will, however, be a claw-back of the rebate if you sell the panels themselves within one year after they were first brought into use to counter potential abuse.
Rooftop Solar tax incentive for Businesses
From 1 March 2023, businesses will qualify for a 125% tax deduction on qualifying investment costs for a 2-year window period. There will be no limit to the qualifying cost of such investments. This means that businesses will qualify for a cost plus 25% allowance on the cost incurred on renewable projects in the year it was incurred.
The adjusted incentive will only be available for investments brought into use for the first time between 1 March 2023 and 28 February 2025.
For a business with positive taxable income, the deduction will reduce its tax liability.
By Laverne Geswint | GTP – (SA) SAIT
General Tax Practitioner South Africa
Laverne has more than 18 years of experience as a tax practitioner with a BCOMPT in Accounting Science, majoring in Taxation (UNISA). She also has a Postgraduate Diploma in Taxation (UNISA) and is part of SAIT.
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