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8-Mar-2023-blog

In Part I of our 3-part series on Load Shedding Income Tax Incentives, we explained S12B in the context of these incentives.  Whereas S12B relates to the assets used directly in the renewable process, S12U deals with capital allowances for supporting infrastructural investments.

In Part II of our 3-part blog series we explain S12U in more detail.  If you have missed Part I, click here to read it before moving onto S12U.

S12U explained

S12U of the Income Tax Act No. 58 of 1962, as amended (“the Act”), provides for an accelerated write-off of the cost of roads and/or fencing, constructed in respect of assets used in the production of renewable energy, more specifically:
  • Assets used for the production of bio-diesel or bio-ethanol
  • Assets used by a taxpayer for the purpose of his trade, in the generation of electricity from
  • Wind power
  • Solar energy:
  • Photovoltaic solar energy of more than 1 megawatt
  • Photovoltaic solar energy not exceeding 1 megawatt
  • Concentrated solar energy
  • Hydropower of not more than 30 megawatts
  • Biomass

Whereas S12B provides for a write-off over three years, or one year in the case of photovoltaic solar energy not exceeding 1 megawatt, S12U presents a more aggressive approach, with a write-off in full in the year of expenditure. 

Implementation guidelines

To ensure your business qualifies for S12U relief, here’s what you need to know:

The write-off covers the cost of infrastructure to support qualifying renewable energy assets, more specifically:

  • New roads and/or fencing.
  • Improvements to roads and/or fencing.
  • Any improvements to or cost of new foundations.
The section is limited, however, as follows:
  • Electricity production from the renewable energy investment cannot exceed 5 megawatts.
  • Waterpower must be hydropower that does not produce more than 20 megawatts of electricity.
S12U applies to the exclusion of S11(e) i.e. both cannot be claimed. Where S12U is unavailable due to exclusions noted above, S11(e) would apply. The deduction of pre-trade expenditure is permitted and triggers when trade commences, unless already deducted elsewhere.

Closing thoughts

S12U is not ring-fenced in any way and this, combined with the impact of S12B, makes for a compelling income tax planning opportunity for those businesses wishing to pursue renewable energy alternatives to Eskom.  Reach out to our income tax experts for advice on how to implement S12U in your business income tax planning.

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