Solar tax breaks in South Africa — what homeowners and businesses should know

The demand for solar power equipment in South Africa will likely rise with the country’s new solar incentives, but homeowners and businesses must know what to do to qualify for the tax breaks.

Partners at Webber Wentzel, Chetan Vanmali and Joon Chong highlighted the factors businesses and individuals must consider to receive the incentives before proceeding with their solar installations.

“Those wishing to take advantage of the tax breaks should move quickly, as they are only available for a limited period,” they wrote.

“The necessary empowering legislation will be included in the annual tax amendments, but it is not necessary for those wishing to apply for the rebate to wait until the legislation is passed.”

Homeowners in South Africa are eligible for a tax rebate of 25% of the cost of any new and unused solar panels installed at a private residence with a certificate of electrical compliance.

The tax rebate caps at R15,000 and the electrical compliance certificate must have been issued between 1 March 2023 and 29 February 2024.

However, the incentives only apply to solar panels and will not be granted for other equipment like inverters and generators.

The tax breaks also won’t be granted for solar panels smaller than 275W.

“These panels may be a new installation, or an extension of an existing system,” Vanmali and Chong wrote. “The system must be connected to the residence’s mains distribution.”

“The rebate is available to the person who pays for the system, so it is not confined to property owners. However, body corporates do not qualify.”

Customers wishing to claim the incentive must submit a VAT invoice, proof of payment, and Certificate of Compliance to the South African Revenue Service (SARS).

Chetan Vanmali (left) and Joon Chong (right), partners at Webber Wentzel.

“The rebate will only be claimable on submission of the ITR12 annual returns for individuals,” Vanmali and Chong said.

“There is thus a significant time lag between the time expenses are incurred, and when the refund will be received by the individual.”

“As with the home office deductions, we also anticipate stringent verifications and audits by SARS before these rebates are refunded to individuals,” they added.

On the other hand, businesses are set to benefit more from South Africa’s solar tax breaks, with qualifying companies able to claim a 125% tax rebate on any form of renewable energy project.

“The latest proposals allow for a 125% tax rebate over one year for any renewable energy project, with no cap on the generation capacity,” Vanmali and Chong wrote.

“This will be available only for installations coming into use for the first time between 1 March 2023 and 28 February 2025 — in other words, the incentive is available for two years, as opposed to the one year for domestic installations.”

For example, a business that installs a qualifying R1-million solar system can claim a section 12B deduction of R1.25-million.

According to Vanmali and Chong, the rebate could translate to substantial savings for South African businesses. Based on their calculations, the R1-million investment could reduce income tax liability by nearly R340,000.

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.

Now read: Eskom proposes Stage 16 load-shedding schedules

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Solar tax breaks in South Africa — what homeowners and businesses should know