Government calls for public comment on renewable energy tax incentives

Taxpayers have until 15 May to comment on the recently published 2023 draft Taxation Laws Amendment Bill dealing with the renewable energy incentives announced during Finance Minister Enoch Godongwana’s February budget speech.

Because of the urgency of the need to address the growing energy crisis the initial batch of changes allows for an early as well as an additional public comment process to enhance certainty and encourage immediate private investment in electricity generation.

The effective date for the incentives was 1 March 2023.

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The incentives

The incentive for individuals covers a rooftop solar tax rebate of 25% on the cost of any new and unused solar photovoltaic (PV) panels up to R15 000.

The incentive for businesses is set out in a newly inserted section of the Income Tax Act that allows for an enhanced deduction in respect of certain machinery, plant, implements, utensils, and articles used in the production of renewable energy.

A business can now claim a 125% deduction in the first year for qualifying capital expenditure with no threshold on generation capacity.

The incentive for individuals runs until the end of February 2024 and for businesses until the end of February 2025.

When Godongwana made the announcement body corporates were not included since it was unclear whether they would be investing in solar installations instead of using leasing or other options to avoid upfront costs for members.

National Treasury and the South African Revenue Service (Sars) have now invited body corporates to submit proposals on how the rooftop solar incentive could be applied to members of the body corporate if it were to install solar panels.

Recoupment provisions

If an individual sells a solar panel that qualified for the tax credit on or before 1 March 2025, the tax credit will be recouped as an additional amount of tax payable in the year of assessment when the panel is sold. However, if the panels remain on the roof of a residence if the individual sells it or moves out there will be no recoupment.

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Similarly, in the case of the business incentive there will be a recoupment if a taxpayer sells an asset, or in any other manner recovers or recoups the purchase price of an asset, on or before 1 March 2026. Sars will include 25% of the amounts recovered in the taxpayer’s income. This will be in addition to the recoupment provisions in the act where amounts that have been allowed as a deduction and have been “regained, compensated for or repossessed” must be included in a taxpayer’s income.

Limited funds

Tax and energy experts have raised questions about the exclusion of the costs of inverters, batteries, and installation costs for individuals. National Treasury explained that the focus on solar panels was to maximise the use of limited government funds to get as much additional generation capacity as possible.

Jackie Arendse, professor of taxation at Academy One and The Tax Faculty presenter, said earlier it was like giving a wear-and-tear allowance on the tyres of a car and not the car itself.

Individuals who are paying personal income tax will be eligible. There must be a system (installed inverter) that is connected to the distribution board (DB) of a residence. Many households have already invested in an inverter and battery (UPS) system connected to the DB.

The panels can be installed as part of a new system, or as an extension of an existing system. Only solar PV panels with a minimum capacity of 275W per panel (design output) qualify for the rebate.

The tax credit

The incentive will apply in a similar manner to the medical tax credit system. The credit can only be claimed once the taxable income for the tax year has been calculated.

People who are renting a property and install a solar system will be able to claim the rebate.

Similarly, if someone pays for the solar panels at their parents’ or children’s home the purchaser should be able to qualify for the incentive.

The renewable energy incentive for businesses is not limited to solar panels but also includes wind power, concentrated solar energy, hydropower, and biomass electricity generation systems.

This article originally appeared on Moneyweb and was republished with permission. Read the original article here.

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