By Jean-Louis Nel – Tax Director
National Treasury introduced a Solar Panel Tax Incentive for individuals during the 2023 budget speech. The incentive was introduced to encourage households to invest in clean electricity generation capacity that can supplement Eskom’s supply and will only be available for a limited time.
In terms of section 6C of the Income Tax Act, a natural person may be eligible for the tax credit on the cost that has been actually incurred in respect of the acquisition of qualifying solar photovoltaic panels. Stated differently, where an individual acquired solar panels the costs thereof can reduce a person’s income tax liability.
Requirements to claim the section 6C credit
In order to claim the section 6C credit, the following requirements must be met:
- The solar panels must be new and unused with a generating capacity of not less than 275W per solar panel;
- The solar panels must be brought in use for the first time by the individual claiming the section 6C credit on or after 1 March 2023 and before 1 March 2024;
- The solar panels must be installed and mounted on or affixed to a residence mainly used for domestic purposes by the individual;
- The installation of the solar panel must be connected to the distribution board of the individual’s residence; and
- An electrical certificate of compliance as contemplated in the Electrical Installation Regulations, 2009, must be issued in respect of the solar panel installation.
Where the above requirements are met, the solar energy tax credit allowed to the individual shall be equal to:
- 25% of the actual cost of the solar photovoltaic panels; however
- limited to an amount not exceeding R15 000.00.
Practical application of section 6C
Joe Soap invested in the installation of a solar energy system which consisted of 10 solar panels. All the requirements to claim the section 6C credit was met by Joe Soap, i.e. the solar panels are new and unused and affixed to his residence etc. The cost of the panels was R70,000.00.
Joe Soap shall be entitled to claim 25% of the cost of the panels as a tax credit, however, the amount may not exceed R15,000.00.
- The tax credit is calculated as follows: R70 000 × 25% = R17 500 limited to R15 000.
Therefore, Joe Soap can claim a maximum of R15,000.00 and the remaining R2,500.00 will be forfeited.
Section 102 of the Tax Administration Act places the burden of proof on a taxpayer to evidence that a certain amount is deductible against its taxable income, for example the section 6C credit.
It is advisable that the taxpayers claiming the section 6C credit retain records of the following:
- An electrical certificate of compliance. The certificate must, amongst other things, contain a certificate number and the registration number and contact details of the electrical contractor that completed the installation and certification.
- An invoice for the purchase of the solar panels indicating the number of panels purchased, the cost per solar panel and the wattage of each panel.
- Proof of the date of installation of the panels and the date when they were brought into use.
- Proof that the installation is in respect of a residence mainly used for domestic purposes by the natural person who acquired the solar panels.
SARS has recently published ‘The Draft Guide on The Solar Energy Tax Credit Provided Under Section 6C’ which requires individuals claiming the section 6C credit to retain the above-mentioned records, notwithstanding that is not a requirement per the wording of the provisions of section 6C.
SARS may disallow the section 6C credit if supporting documents are not provided by individuals claiming it. This may be based on the failure to prove that a certain amount is deductible against taxable income as required by section 102 of the Tax Administration Act.
The section 6C credit can only be relied on if an individual installed new and unused solar panels during 1 March 2023 and before 1 March 2024 and has the necessary contemporaneous documents to support the installation of the solar panels.
If an individual fails to install solar panels before sunset of 29 February 2024, and in the absence of any valid supporting documents, the section 6C credit shall be forfeited as a consequence.