Anticipating the surge in demand for solar power equipment spurred by South Africa’s newly introduced solar incentives, it’s crucial for homeowners and businesses to be well-versed in the qualifying criteria for these tax benefits.
Legal experts Chetan Vanmali and Joon Chong from Webber Wentzel have shed light on the essential considerations that individuals and businesses should be aware of before embarking on solar installations in order to make the most of these incentives.
Vanmali and Chong emphasize that time is of the essence, as the tax breaks are available for a limited period and waiting for legislation to pass is not necessary for applying for the rebate.
For homeowners, the tax rebate entails 25% of the costs associated with new and unused solar panel installations in private residences that possess an electrical compliance certificate. This rebate is capped at R15,000, and the electrical compliance certificate must be dated between March 1, 2023, and February 29, 2024.
It’s important to note that this incentive is specifically directed at solar panels and excludes equipment like inverters and generators. Moreover, solar panels with a capacity smaller than 275W won’t qualify for these benefits.
Vanmali and Chong clarify that the rebate extends to those paying for the system and is not confined to property owners. However, it’s important to mention that body corporates are not eligible for the rebate. Claiming the incentive requires the submission of a VAT invoice, proof of payment, and Certificate of Compliance to the South African Revenue Service (SARS).
The process for claiming the rebate is tied to the submission of the ITR12 annual returns for individuals, creating a notable time gap between incurring expenses and receiving the refund.
For businesses, the solar tax breaks offer more substantial benefits. Qualifying companies can claim a 125% tax rebate for any renewable energy project. This incentive spans two years, from March 1, 2023, to February 28, 2025, and has no cap on generation capacity.
This means businesses can leverage a 125% tax rebate over one year for newly operational renewable energy projects. For instance, a business investing R1 million in a solar system could claim a section 12B deduction of R1.25 million, potentially leading to significant tax savings.
Vanmali and Chong assert that these incentives could play a pivotal role in mitigating the adverse economic impacts of power outages in South Africa. They encourage homeowners and businesses alike to leverage these incentives while remaining attentive to the outlined criteria and timelines.
At the current corporate income tax rate of 27%, the investment could reduce income tax liability by R1.25-million x 27% = R337,500.
Section 12B deductions can be claimed for the following projects:
- The costs of all PV panels and their constituent parts, including concrete foundations and supporting steel structures;
- DC combiner, DC combiner boxes and feeder lines;
- AC inverters and all equipment, including batteries, used for electricity generation;
- Racking, cables and wiring for the solar PV system (but not distribution boxes not forming part of the system);
- Solar PV site installation planning costs;
- Solar PV panel delivery costs;
- Solar PV system installation safety officer costs; and
- Solar PV system installation costs.
“The above solar incentives are most welcomed and will assist with managing the adverse economic effects of load-shedding,” said Vanmali and Chong.