National Treasury and the South African Revenue Service (Sars) have published, for public comment, the draft legislative amendments to give effect to the tax incentives for investing in renewable energy generation announced in the 2023 Budget.
The amendments are contained in an “initial batch” of the 2023 draft Taxation Laws Amendment Bill (TLAB). Treasury said the amendments are urgent because of the proposed effective implementation dates, and because individuals and businesses that want to invest in renewable energy need certainty.
The provisions of the draft legislation do not differ substantially from what was announced in the Budget.
The solar incentive enables individual taxpayers to receive a tax rebate to the value of 25% of the cost of new and unused solar photovoltaic (PV) panels, capped at R15 000. The tax incentive is available for one year and applies to solar PV panels that are brought into use for the first time on or after 1 March 2023 and before 1 March 2024.
The expanded section 12B tax incentive enables taxpayers who are conducting a business to claim a 125% tax deduction in the first year for qualifying capital expenditure in respect of all renewable energy projects, with no threshold on generation capacity. The enhanced incentive is available for two years and applies to investments in renewable energy projects brought into use for the first time on or after 1 March 2023 and before 1 March 2025.
Any clarification?
In my previous articles on the incentives, Phillip Joubert, the manager of the Centre of Tax Excellence at the South African Institute of Professional Accountants, highlighted the key aspects of the proposed incentives and some of the grey areas that he hoped the draft legislation would clarify.
Read: A deeper look at the solar panel tax incentive for individuals
Read: How the expanded section 12B allowance may benefit businesses
So, has the draft legislation provided the anticipated clarification?
The draft bill has clarified that, where more than one taxpayer pays for installing solar PV panels at the same residence, each taxpayer will be able to claim a pro rata share of the 25% rebate, depending on how much a taxpayer contributed to the cost of the installation, Joubert said.
The draft legislation also states that if a taxpayer sells a solar PV panel before 1 March 2025 that qualified for the rebate, the taxpayer will have to pay the rebate back to Sars. So, in the unlikely event that you intend to sell one of or all the panels for which you received a rebate, you must do so a year after the tax incentive has expired, or you will forfeit the rebate.
However, Sars will not claw back the rebate if you sell or vacate your property at any time after installing the panels.
Joubert said the draft legislation has not clarified:
- Whether a taxpayer qualify for the rebate if he or she installed a complete solar kit, say, two years ago, but replaces damaged panels between 1 March 2023 and 29 February 2024.
- Whether a taxpayer qualify for the rebate if he or she was partially off-grid before 1 March 2023 and instals additional panels between 1 March 2023 and 29 February 2024 to go completely off-grid.
- Whether leasing or rent-to-own arrangements will qualify for the rebate.
In addition, the draft legislation states the panels must be installed at a residence that is “mainly” used by an individual for domestic purposes. But the legislation does not clarify what is meant by “mainly”. If an accountant, for example, has offices at his or her place of residence, does the taxpayer still qualify for the individual tax incentive or must he or she use the business allowance? This conundrum may also arise in the case of a bed-and-breakfast or guesthouse where the owner lives on the property and shares at least some of the same areas as the paying guests.
What about body corporates?
Residents of sectional title schemes can claim the rebate if they instal panels in their capacity as individual taxpayers. They would have to obtain written permission from the body corporate to instal the panels on the common property. But there is no provision for body corporates to claim the rebate.
National Treasury has asked body corporates to submit proposals on how the rooftop solar incentive could be applied to their members if the body corporate installed the panels on the members’ behalf.
One of the problems with applying the rebate to body corporates is that their main source of income, levies (including special levies), is exempt from income tax. A rebate cannot be applied where taxable income does not exist.
New section 12BA
The draft legislation has not amended the existing section 12B allowance to take account of the expanded renewable energy tax incentive for businesses. Instead, it proposes including the expanded allowance as a new section 12BA in the Income Tax Act.
Joubert said the section 12BA is very much a “copy and paste” of section 12B, and it is not clear why Treasury has decided to provide for the expanded allowance via a new section instead of by amending section 12B.
However, the draft legislation does make it clear that a taxpayer cannot claim the section 12B and the section 12BA allowances. It also states that small business corporations cannot claim the section 12BA allowance and the section 12E allowance.
As with the incentive for residential solar, there is a clawback provision in the section 12BA allowance. If a taxpayer sells or in any other manner recovers or recoups the purchase price of an asset before 1 March 2026 in respect of which the allowance was, 25% of the amounts recovered or recouped shall be included in the taxpayer’s income. This is in addition to the amounts included in terms of recoupment provisions in section 8(4)(a) of the Income Tax Act.
Deadline to comment
Treasury said the publication of the initial batch of the 2023 draft TLAB enables an early, and additional, public comment process that will enable the more detailed second-round process of public comment when the provisions are incorporated in the more comprehensive draft TLAB in July.
Comments on the draft legislation must be sent to Treasury’s tax policy depository at 2022AnnexCProp@treasury.gov.za and Sars at acollins@sars.gov.za by the close of business on Monday, 15 May.
Click here to download the explanatory memorandum and the draft legislation.
