If you have been considering installing solar panels for your home or business, there has never been a better time than right now. With load shedding unlikely to end anytime soon, and electricity costs continuing to rise, investing in solar energy is an option that will offer long-term benefits. Not only will you save money in the long run, but you will also be doing your part to reduce your carbon footprint. Solar energy is renewable, clean, and efficient, making it an ideal source of energy. Additionally, the Minister of Finance announced new tax incentives to encourage citizens to switch to solar power during the budget speech on 22 February 2023.
The new tax incentives are available to both businesses and individuals; however these incentives differ from one another.
Businesses:
Section 12B(1)(h) of the Income Tax Act provides for a deduction in respect of the cost of machinery, plant, implements, utensils, or articles used in the generation of electricity through renewable sources.
Qualifying investments in wind, concentrated solar, hydropower below 30 megawatts (MW), biomass and PV projects above 1MW are normally deductible from tax as follows: 50% of the costs in the first year, 30% in the second and 20% in the third.
For assets generating solar energy less than 1MW, the costs are normally deducted at 100% during the first year of operation.
For a limited period the government is expanding the tax incentive available for businesses in terms of section 12B of the Income Tax Act as follows: The full cost plus 25% – in other words, 125% – of the renewable energy assets will be deductible in the first year.
The following costs will be deductible from the business’ income tax:
- Panels and delivery costs
- Installation costs
- Installation safety officer costs
To qualify for this incentive, businesses must meet the following three requirements:
- Solar panels must be owned by the taxpayer claiming the deduction or purchased under an instalment credit agreement;
- The solar panels must be brought into use for the first time by the taxpayer in the year in which they want to claim the tax deduction;
- The solar panels must be used by the taxpayer in the course of its trade.
The adjusted incentive will be available only for renewable energy assets brought into use for the first time between 1 March 2023 and 28 February 2025.
Individuals:
The government also wants to encourage households to invest in renewable energy which will then supplement electricity supply. The incentive will only be available for one year so it is important to take advantage of this incentive as soon as possible.
Individuals who pay personal income tax can claim the rebate against their tax liability. This rebate is not intended for solar installation at business premises and may only be applied to panels installed for domestic purposes.
Individuals can claim a rebate to the value of 25% of the cost of the new and unused and photovoltaic (PV) panels, up to a maximum of R 15 000 per individual.
Requirements:
- Only new and unused panels qualify, however the panels can be installed as part of a new system or as an extension of an existing system;
- Solar PV panels with a minimum capacity of 275W per panel qualify, while other components and portable panels are not eligible;
- The solar PV panels must be installed at the residence that is used for domestic purposes by the individual and a certificate of compliance in terms of the Electrical Installation Regulations of 2009 will have to be obtained with the installation;
- The solar PV panels must be part of the system that is connected to the mains distributions of the private residence.
The rebate only applies to solar PV panels that are brought into use for the first time in the period from 1 March 2023 to 29 February 2024.
How to claim the incentive:
A claim may be submitted by individuals if they have the following documents as proof:
- A VAT invoice indicating the cost of the solar PV panels separately from other items, along with proof of payment,
- Certificate of compliance evidencing that the panels were installed for the first time during the period 1 March 2023 to 29 February 2024.
Those who rent their homes may also claim the rebate if they paid for the solar panels; however, if the landlord purchased the solar panels, the landlord is eligible to claim the rebate.
PAYE taxpayers can claim the rebate during the 2023/2024 filing season.
Provisional taxpayers can also claim the rebate against provisional and final payments.