Under S12B of the Income Tax Act, and prior to the Budget 2023 amendment to this section, businesses were granted an accelerated write-off in respect of investments made in their own generation of renewable energy. Intended to encourage businesses to invest in solar and other renewable sources to reduce dependency on the national grid, the section provided for the following write-off:
| Year 1: 50% |
| Year 2: 30% |
| Year 3: 20% |
The write-off would be based on costs incurred and would trigger once the generation system was brought into use. Where the investment was in the generation of photovoltaic solar energy of up to 1 megawatt, the write-off was amended to 100% in the year that the system is brought into use. SARS defined renewable energies as those pertaining to the generation of electricity from photovoltaic solar energy, concentrated solar energy, hydropower, biomass or wind power. In addition, the write-off included all support structures of the plant integral to the functioning and operation thereof.
SARS Enhanced Incentive under S12BA
Budget 2023 featured an enhancement to S12B with the introduction of S12BA. Anti-overlap rules apply in that S12BA cannot be utilised by the taxpayer in conjunction with S12B.
The new section makes provision for a further 25% with the full write-off available in year 1 i.e. 125% of the cost incurred may be written off against taxable income in the year that the system is deployed. The additional incentive is available for the period 1 March 2023 – 29 February 2025. As an added incentive, the enhanced write-off may be utilised to create an assessed loss, which is especially encouraging for businesses with the means or financing facilities to move off-grid.
In the interpretation of S12BA, all other terms and conditions as set out in S12B remain.
Solar Energy Tax Credit
Whilst not as exciting as the amendment to S12B for companies, Budget 2023 included the solar energy tax credit under the new section 6C. The credit offered an incentive for individual taxpayers to claim a tax credit of 25% of the cost of solar panels (only), up to a maximum value of R15,000, to be claimed once only in the year that the solar system is brought into use. The incentive is available for the tax year end 28 February 2024, but was not extended for subsequent tax years.
Similar anti-overlap rules apply to companies, whereby an individual cannot claim this tax credit for any element of a system that qualifies under S12B or S12BA.
Relative to the value of the investment, the tax credit is significantly less encouraging than the enhanced write-off available to companies under S12BA but does offer some reprieve for individuals wishing to move off-grid. The credit is limited, however, to the cost of solar panels.
Closing thoughts
Whilst these sections were written with the intention of incentivising businesses and individual taxpayers to enter solar energy solutions for their businesses and homes, respectively, the inclusions available under these sections must be understood to determine the value of the write-off available correctly. Batteries for the storage of energy generated, for example, would not qualify for the accelerated write-off under S12BA (but would be eligible for wear and tear under S11(e).