My Broadband 22nd February 2023 by Hanno Labuschagne

Tax relief to soften the blow of load shedding and inflation

Tax-paying South African individuals and businesses will be able to claim substantial rebates for rooftop solar and other renewable energy generation in the coming financial year.

The announcement formed part of finance minister Enoch Godongwana’s 2023 Budget Speech in Parliament on Wednesday, 22 February.

“Individuals who install rooftop solar panels from 1 March 2023 will be able to claim a rebate of 25% of the cost of the panels, up to a maximum [rebate] of R15,000,” said Godongwana.

An accompanying FAQ document  (click here to view) on the incentive for individuals explained that Government had proposed this program to encourage households to invest in clean electricity generation capacity, which can supplement the country’s power supply.

“The incentive will only be available for one year to encourage investment as soon as possible,” the document said.

Individuals who pay personal income tax with Sars can claim the rebate against their tax liability.

For example, a person who buys ten photovoltaic (PV) solar panels for R40,000 can claim back R10,000 in tax.

Another individual who can buy 20 panels for R80,000 can claim the maximum of R15,000, working out to an 18.75% rebate.

The complete list of requirements for the rebate is as follows:

• • Only new and unused solar PV panels qualify to ensure that the capacity is in addition to what the country already has in place.
  • The panels can be installed as part of a new system or as an extension of an existing one.
  • Only solar PV panels with a minimum capacity of 275W per panel qualify for the rebate.
  • Other components of a system — batteries, inverters, fittings or diesel generators — do not qualify. Portable panels will also not qualify.
  • Installation costs do not qualify.
  • Solar PV panels must be installed at a residence that is mainly used by an individual for domestic purposes.
  • The installation must have a certificate of compliance in terms of the Electrical Installation Regulations 2009 to ensure its safety and compliance.
  • The solar PV panels must form part of a system connected to the private residence’s main distribution board.
  • The rebate applies to qualifying solar PV panels brought into use for the first time from 1 March 2023 to 29 February 2024.

The rebate will apply to landlords and renters with permission to install the solar panels, with only the paying party able to claim the tax break.

Body corporates will not be able to claim the rebate, although government said it would consult on this if there were widespread interest.

Homeowners will not have to repay Sars if they sell the house with solar installation.

However, if the panels themselves are sold within one year of purchase, a claw-back of the rebate will apply.

PAYE taxpayers can claim the rebate on assessment during 2023/24 filing season, while provisional taxpayers can claim the tax break against provisional and final payments.

They will need to supply the following documents alongside their claim:

• • A VAT invoice that indicates the cost of the solar PV panels separately from other items, along with proof of payment.
  • Certificate of Compliance evidencing that the solar PV panels were brought into use for the first time between 1 March 2023 and 29 February 2024.

Big incentive boost for businesses with renewables

 Businesses will not be able to use the rebate applicable to individuals.

Instead, the current renewable energy tax incentive for businesses will be expanded.

The current incentive allows businesses to deduct the costs of qualifying investments over a one- or three-year period, when they invest in wind, concentrated solar, hydropower below 30 megawatts (MW), biomass, and PV solar projects.

As it stands, businesses will be able to deduct 50% of the costs in the first year, 30% in the second and 20% in the third year on qualifying investments above 1MW of generation.

Investors in PV projects below 1 MW can deduct 100% of the cost in the first year.

Under the expanded incentive, businesses will be able to claim a 125% deduction in the first year for all renewable energy projects with no thresholds on generation capacity.

“For a business with positive taxable income, the deduction will reduce its tax liability,” National Treasury said.

“For example, a renewable energy investment of R1 million would qualify for a deduction of R1.25 million.”

“Using the current corporate tax rate, this deduction could reduce the corporate income tax liability of a company by R337,500 in the first year of operation.”

National Treasury said the adjusted incentive for business will be available for two years, from 1 March 2023 to 28 February 2025.