Tax incentives for solar panels and renewable energy projects
Individuals – Tax Credit for Solar Panels
A new section 6C of the Income Tax Act 58 of 1962 (the Act) is proposed to be introduced, which provision is proposed to allow individual taxpayers to claim a rebate to the value of 25% of the cost of new and unused solar photovoltaic (PV) panels (which are brought into use for the first time from 1 March 2023 to 1 March 2024), subject to a maximum of R15,000 per individual taxpayer.
The rebate extends only to new and unused solar PV panels which are installed and connected to the main distribution board of the individual taxpayer’s residence used mainly for domestic purposes. It is noted that there does not appear to be any limitation on ownership therefore either the landlord or the tenant, whichever of individual incurs the costs (i.e., pays) for such panels is eligible to claim the rebate. Qualifying solar panels must have a minimum capacity of 275W per panel.
The rebate requires that the individual provides a certificate of compliance in terms of electrical installation regulations. However, the rebate does not apply to the cost of the installation. Furthermore, the rebate does not cover any other components of the solar system, i.e., batteries, inverters, fittings, diesel generators or portable panels.
It is recommended that in order to limit the queries from SARS in claiming such rebate that the individual requests the service provider to provide a separate VAT invoice for the costs of the solar PV panels and make payment thereof separately. It may be prudent to ensure that the details of the individual claiming the rebate are duly recorded on the invoice and the proof of payment.
Where before 1 March 2025, an individual disposes of the solar photovoltaic (PV) panels, other than by sale of the residence to which the solar photovoltaic PV panels is affixed, the amount of the solar energy tax credit allowed (25 % of the cost or R15,000) must be deemed to be an additional amount of normal tax payable by the individual in the year of assessment of the disposal.
Lastly, non-provisional taxpayers will claim the rebate in the tax return relating to the 2023/24 filing season and provisional taxpayers will claim against provisional tax and on assessment.
Enhanced Business Incentive for Renewable Energy Projects
This business incentive will apply to all taxpayers that are carrying on a trade which may include:
- Sole proprietors
- Business trusts
A new section 12BA is proposed to be introduced into the Act, which is proposed to provide for an enhanced deduction in respect of any new and unused machinery, plant, implements, utensils, and articles used in the production of renewable energy which were or are brought into use for the first time by the taxpayer for the purpose of that taxpayer’s trade on or after 1 March 2023 and before 1 March 2025, to be used by that taxpayer in generation of electricity from:
- wind power;
- photovoltaic solar energy;
- concentrated solar energy;
- hydropower to produce electricity; or
- biomass compromising organic wastes, landfill gas or plant material.
In addition, section 12BA of the Act is proposed to apply where the machinery, plant, implements, utensils, articles, or improvement are mounted on or affixed to any concrete or other foundation or supporting structure.
The deduction is equal to an amount of 125% of the cost incurred by the taxpayer for the acquisition of the asset. No deduction is allowed where the asset has been let by the taxpayer under a lease other than an operating lease as defined in section 23A (1) unless:
- the lessee (taxpayer) under such lease derives in the carrying on of his/her trade income; and
- the period of the lease must be at least 5 years or a shorter period as it is shown by the taxpayer to be the useful life of the asset.
Where before 1 March 2026, a taxpayer disposes of an asset as per section 12BA of the Act, there shall be included in the taxpayer’s income a recoupment 25% of the cost of that asset in terms of section 12BA and a further recoupment as applicable under section 8(4)(a) during the current year of assessment.