Tax break for all South Africans who install solar power systems
Who wouldn't want to be incentivised for giving their company full Power Independence?
South Africa’s government, energy regulator and Eskom have often been criticised for obstructing the introduction of distributed, small-scale embedded generation (SSEG) which would help businesses to cut costs and ensure the stability of their power supply during load shedding.
But in fact, there are significant and far-sighted tax breaks which have been put in place by National Treasury to encourage and incentivise business owners to install their own Power generation in the form of grid-tied solar PV systems.
Did you know about Accelerated depreciation allowances for Solar Systems?
From 1 January 2016, a little-known amendment to Section 12B of the Income Tax Act (Act 58 of 1996) allows for depreciation in the year of commissioning of the full (100%) cost of a grid-tied solar PV system of less than 1 MW used for electricity generation by a business in the course of its operations.
The capital depreciation allowances for solar PV systems greater than 1 MW remained unchanged in the January 2016 amendment to the legislation, which continues to allow full depreciation over three years. This permits depreciation of 50% of the capital cost in the year of commissioning, 30% in the subsequent year, and 20% in the third year.
The accelerated depreciation allowance for solar PV systems applies whether they are installed for the business by contractors or developers, or paid for by the business in a credit sale agreement (as defined in Section 1 of the Value-Added Tax Act) – either upfront in a single payment or in multiple payments over an extended period.
The cost of the solar PV system allowed for accelerated depreciation includes its full direct capital cost, including design and engineering, project planning, delivery, foundations and supporting structures, Solar PV panels, AC inverters, DC combiner boxes, racking, cables and wiring, and installation.
This allowance was confirmed in a binding private ruling by SARS dated 11 October 2018 (BPR 311) in respect of an application by a private company in South Africa to clarify the deductibility of the capital expenditure incurred to install solar PV systems at a number of sites owned and leased by the applicant. The systems were being installed to reduce the company’s electricity costs.
Going solar makes more and more sense when you take into account the pure Power Independence you get aswell as the absolute savings you receive from day 1.
The improved business case for going Solar makes it a no brainer...
Whether paid for upfront after commissioning, or in multiple payments over an extended period, the benefits of this tax incentive to business owners, particularly for Solar PV systems of less than 1 MW, are significant.
Where the company tax rate is 28% and payment is upfront, a 100% tax-deductible depreciation allowance in the year of installation and commissioning will result in a 28% nett discount on the purchase price of the system at the end of the tax year.
This significantly affects and reduces the payback period of a solar PV project of less than 1 MW.
Better still, when paying for the same solar PV system on a credit sale agreement through multiple payments over an extended period, the transaction can be cash-flow positive for the business over the lifetime of the solar PV plant in all but the first months to the end of the tax year during which commissioning takes place.
With these significant tax incentives, and the rapidly rising price of grid electricity, the business case for installation of grid-tied, rooftop and ground-mounted solar PV is fast becoming a no-brainer.
Get in touch at [email protected] to confirm if your system can be financed and a sustainable solutions specialist will take you through everything you need to understand just how to become Power Independent while taking advantage of this great tax benefit.
Let's spread the news and drag South Africans out of this energy blackhole together...
Amazingly, few business-owners and companies are aware of these tax breaks, which can make such a positive impact on their cashflow and bottom line.
This lack of awareness is perhaps a result of the difficulties faced in accessing relevant information on the subject from SARS itself.
For example, efforts to simply download or view the up-to-date amended Section 12B of the Income Tax Act from the SARS website and the public internet proved fruitless.
Similarly, no response or even acknowledgement of receipt was received to a query sent to the SARS media desk at [email protected].
Only after a time-consuming search and a paid subscription to a private tax information service provider was this possible. At EcoIP one of the first things we inform potential clients of is to make full use of these incentives as together we can battle this energy crisis South Africa faces aswell as become full Power Independent, now who would'nt want that?
Challenge or Opportunity?
Businesses which have installed or are about to do so, stand to benefit substantially. The Council for Scientific and Industrial Research (CSIR) estimates that there were close to 558 MW of installed solar PV in the country at the end of 2020, and that that number will dramatically increase in 2021. With wider understanding of the business case, this could be much higher in future.
Most of these installations are less than 1 MW – which is all that most private businesses require across a wide range of sectors of the economy, including manufacturing, retail etc.
If only the various arms of government, business, labour and communities were on the same page and working with a common purpose to bring the benefits of SSEG to the productive economy and the environment, to address the current electricity and water supply constraints, and to facilitate economic growth and the creation of quality jobs.
If your curious as to how to take full advantage of these incentives and to get one step closer to full Power Independence then contact us at [email protected] and let us show you exactly how to do this.