By Jean-Louis Nel – Tax Director
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Government has announced temporary incentives for residential and business solar PV installations to help improve South Africa’s energy generation, these incentives are found in Section 6C and 12BA of the Income Tax Act (“ITA”). It is important to distinguish between:
- the section 6C incentive that is available for an individual taxpayer; and
- the section 12BA incentive that is available for corporate taxpayers which can give rise to a tax saving.
We have previously discussed the section 6C incentive that is available for individuals taxpayer in our January newsletter which can be accessed here.
Section 12BA of the ITA allows a corporate taxpayer to claim a deduction equal to an amount of 125% of the cost incurred by the corporate taxpayer for the acquisition of the assets and supporting structures (including the direct cost of installation or erection) that is used for the generation of electricity, as part of the corporate taxpayer’s trade, in South Africa from:
- wind power;
- photovoltaic solar energy;
- concentrated solar energy;
- hydropower; or
- biomass comprising organic wastes, landfill gas or plant material.
Requirements to claim the section 12BA enhanced deduction.
- The business must own the asset, section 12BA(4) of the ITA expressly excludes any asset retained by a taxpayer as a seller in terms of the definition of ‘instalment credit agreement’ as defined in section 1 of the Value-Added Tax Act and any asset brought in into use after 28 February 2025.
- The asset must be used in the production of income.
- Only new and unused assets qualify, to ensure that the capacity is in addition to what the business was already producing.
- The assets must be brought into use for the first time on or after 1 March 2023 and before 1 March 2025.
- Assets must be used to generate electricity from the renewable energy sources listed above.
- No electricity generation limits are in place for the duration of this temporary incentive compared to section 12B where there is a limitation of 1MW.
Important Considerations
Corporate taxpayers that are of the intention to claim the section 12BA allowance against their taxable income should also take into account the following:
- The cost in respect of which the allowance may be claimed is deemed to be the lesser of the actual cost to the taxpayer or an arm’s length cash cost on the date of acquisition.
- If an allowance is claimed under section 12BA, an allowance would not be available under section 12B or section 12E.
- Section 102 of the Tax Administration Act places the burden of proof on a corporate taxpayer to evidence that a certain amount is deductible against its taxable income. It is therefore, imperative that a corporate taxpayer retain the necessary documents evidencing the costs incurred and that the taxpayer is in the business of generating electricity from renewable sources.
- To the extent the corporate taxpayer disposes on an asset on or before 1 March 2026 on which the 12BA allowance was, the amount previously deducted (to a maximum of 125% of the cost of the asset) will be fully recouped.
- Corporate taxpayers that purchase qualifying assets using a combination of their own funds and funding received from government in the form of a grant, can only benefit from the portion of expenditure incurred using the taxpayer’s own funds as an allowance under the section 12BA.
- Corporate taxpayers engaged in larger electricity generation projects, where the assets will only be brought into use for the first time after 1 March 2025 will not be able to claim the section 12BA allowance.
It is advisable that corporate taxpayers ensure that they comply with the requirements of section 12BA when claiming the allowance in order to receive the full benefit.