The South African government has recently announced a tax incentive program to encourage individuals to invest in clean electricity generation capacity in the form of solar panels. The rebate will be available to individuals who pay personal income tax and can be claimed against their tax liability for a period of one year, starting from March 1, 2023. The program aims to supplement the country’s electricity supply and maximize the use of limited government funds to get as much additional generation capacity as possible.
Who can claim this benefit?
The solar power tax incentive can be claimed by individuals who are liable to pay personal income tax. However, it should be noted that this rebate is not applicable to solar installations at business locations.
But what does an “individual” mean? In South Africa, the South African Revenue Service (SARS) defines an individual as a natural person who is liable to pay income tax. This includes all individuals who earn an income in the country, whether they are citizens, permanent residents, or non-residents. In order to be considered an individual for tax purposes, the person must have a valid South African ID number or a valid tax reference number. This means that trusts and companies are excluded from this incentive.
How does the tax break work?
The objective of the incentive is to incentivize individuals to invest in solar panels to generate more electricity. The incentive is only available for one year to encourage investment as soon as possible. The incentive allows individuals to claim a rebate to the value of 25% of the cost of new and unused solar PV panels, up to a maximum of R15 000 per individual.
What is included and excluded from the tax break?
As the focus of the tax incentive is on power generation and not on power storage, the tax break is only on solar panels. The panels must be new and unused, and only solar PV panels with a minimum capacity of 275W per panel (design output) qualify for the rebate. Portable panels are also excluded, as they can be moved and possibly be claimed multiple times.
Other components of a system including batteries, inverters, fittings or diesel generators, and installation costs do not qualify, as this would fall under power retainment, and not generation.
What do I need to claim the incentive?
To claim the rebate, individuals must have a VAT invoice that indicates the cost of the solar PV panels separately from other items, along with proof of payment, and a certificate of compliance that the solar PV panels were brought into use for the first time in the period from 1 March 2023 to 29 February 2024. PAYE taxpayers will be able to claim the rebate on assessment during the 2023/24 filing season, while provisional taxpayers will be able to claim the rebate against provisional and final payments.
Important details on the tax law
- The tax break is for individuals only. Therefore, the solar panels must be installed at a residence that is primarily used by an individual for domestic purposes.
- A certificate of compliance (COC) must be obtained (in accordance with the Electrical Installation Regulations of 2009).
- The solar incentive applies only to brand-new and unused solar PV panels. The goal is to grow the capacity of power generation in South Africa. These panels can be installed either as part of a new system or as an extension of an existing one.
- To qualify for the rebate, the solar PV panels must have a minimum capacity of 275W per panel in terms of design output.
- The solar PV panels must be part of a system that is connected to the mains distribution of the private residence.
How can businesses take advantage of the 2023 solar tax incentive?
Businesses in South Africa can benefit from a tax break by deducting a percentage of costs for qualifying investments in renewable energy projects. Wind, concentrated solar, hydropower below 30 MW, biomass and photovoltaic (PV) projects above 1 MW are eligible for a 50% deduction in the first year, 30% in the second year, and 20% in the third year. PV projects below 1 MW can deduct 100% of the cost in the first year.
However, for renewable energy projects brought into use for the first time between 1 March 2023 and 28 February 2025, businesses will be able to claim a 125% deduction in the first year with no thresholds on generation capacity. This deduction will reduce a company’s tax liability, and for a business with positive taxable income, a renewable energy investment of R1 million could result in a deduction of R1.25 million, potentially reducing its corporate income tax liability by R337,500 in the first year of operation based on the current corporate tax rate.
Conclusion
South Africa has implemented new tax breaks for renewable energy projects as part of its efforts to transition towards cleaner energy. Individuals who install new and unused solar PV panels will receive a rebate, provided the panels have a minimum capacity of 275W per panel and are installed at a residence used mainly for domestic purposes. The solar panels must also be part of a system connected to the mains distribution of the private residence, and other system components and installation costs do not qualify for the rebate.
Businesses can claim up to 125% back against tax, depending on the fine print. It is recommended to speak to a tax expert to claim back the right amount.
Happy investing!