In our third and final part of our 3-part income tax blog series on Load Shedding Income Tax Incentives, we shift from renewables and turn to energy efficiency incentives. S12L is aimed at rewarding energy efficiency initiatives, in the form of a deduction for energy-efficiency savings achieved during the process of carrying on a trade. Although not directly associated with renewable energy, we have included this section in this series, as it covers incentives in the energy space.
S12L explained
S12L of the Income Tax Act No. 58 of 1962, as amended (“the Act”), is an energy efficiency incentive that was devised as the counter to Carbon Tax. In essence, this is an additional allowance in respect of energy efficiency savings and is available to the exclusion of other energy efficiency savings initiatives, if applicable at the time.
The allowance is calculated at 95 cents per kilowatt hour (or equivalent thereof) and is not ring-fenced. It essentially comes down to rewarding the taxpayer for improvement in energy use, and it applies across all energy sources i.e. electricity and/or fuel.
Implementation guidelines
To ensure your business qualifies for the S12L incentive, here’s what you need to know:
- The incentive grants an income tax deduction for all energy carriers but does not apply to renewable energy sources.
- To claim the deduction, the savings must have arisen in the course of carrying on a trade.
- The taxpayer must be registered with the South African National Energy Development Institute (SANEDI).
- A baseline model and report must be submitted to SANEDI for approval and against this benchmark, actual savings must be measured and calculated, and this determination must be independently verified. Once verified, SANEDI issues the savings certificate.
It is important to note that reporting and verification thereof is a requirement to be eligible for the savings certificate and subsequent incentive.
Closing thoughts
Successfully claiming the S12L incentive relies upon the correct foundation blocks to adequately quantify the savings from energy efficiency incentives to be able to claim the incentive. It is important to model the anticipated incentive for clarity on the likely value of the incentive, should the taxpayer qualify for it.