RENEWABLE ENERGY BUDGET PROPOSALS 2023

In a country where the supply of electricity is constantly uncertain, there are currently limited tax incentives available to taxpayers and which may be used by taxpayers to assist in the generation of electricity. It is therefore welcome that the 2023 Budget will provide tax relief totalling R13 billion to encourage households and businesses to invest in renewable energy, supporting the clean energy transition and addressing the electricity crisis. Of the R13 million budget allocation, R4 billion in relief is provided for households that install solar panels and R5 billion to companies through the expansion of the existing renewable energy incentive.

Expanded 125% renewable energy tax incentive for businesses

Currently, the section 12B allowance provides that businesses can deduct the costs of certain renewable energy installations over a one or three-year period, which creates a cash flow benefit in the early years of a project. Under the expanded incentive announced in the 2023 Budget, businesses will be able to claim a 125% deduction in the first year for all renewable energy projects with no thresholds on generation capacity.
Importantly, the expanded incentive is only available for investments brought into use for the first time between 1 March 2023 and 28 February 2025.
The impact of the incentive is that irrespective of the capacity of the renewable energy assets (i.e. less than or more than 1MW), the taxpayer concerned will be able to claim the 125% deduction. This is a departure from the existing incentive, which made a distinction between projects generating less than 1MW (which could be depreciated by 100% in year one) and those generating more than 1MW (which could be depreciated over a three-year period).
If, for example, a renewable energy investment of R1 million is made by a business, that business will qualify for a deduction of R1,25 million. According to National Treasury, this deduction could reduce the corporate income tax liability of a company by R337,500 in the first year of operation.
The mechanics of section 12B are that the owner or the person acquiring the particular item in the course of conducting their trade may claim the allowance.  There is a link between the expenditure incurred and the ownership of the item concerned.  All RE projects should qualify for the allowance, assuming that the project company owns the installation and incurs the expense as part of its trade. The allowance will therefore not extend to shareholders / investors.  A shareholder / investor could potentially benefit in that there may be the possibility of better returns on the investment if there is an allowance which reduces the tax payable by the company concerned.

Renewable energy incentives for private households

Individuals who invest solar PV panels will be able to benefit from the proposed rooftop solar incentive. Individuals will be able to claim a tax rebate to the value of 25% of the cost of any new and unused solar PV panels, up to a maximum of R15 000 per individual, for the period 1 March 2023 to 29 February 2024.

For example, an individual who purchases 10 solar panels at a cost of R40 000 can reduce their personal income tax liable for the 2023/2024 by R10 000.

To qualify for the rebate –

• only new and unused solar panels with a minimum capacity of 275W will qualify. The panels can be installed as an extension to an existing system;
• the solar panels must be purchased and installed at a private residence. If the residence is rented, the tenant may qualify for the rebate if installed and paid for by the tenant. A body corporate will not be able to claim the incentive;
• an invoice for the cost of the solar panels, together with proof of payment, must be submitted to claim the rebate;
• a certificate of compliance evidencing that the solar panels were brought into use for the first time between 1 March 2023 and 29 February 2024 must be submitted to SARS.
• The rebate does not extend to diesel generators as National Treasury does not view these as a sustainable solution to generate additional power. Furthermore, inverters and batteries can be used without solar panels and so do not offer additional capacity to the system. Installation costs are also not included in the rebate.
  There is no recoupment if the taxpayer subsequently sells their home. However, if the taxpayer sells the panels within one year after first purchasing them, there will be a claw-back.