Advice and Opinion

Draft legislative amendments to Renewable Energy Tax Incentives, up for public comment, bode well for businesses and individuals

The 2023 Budget Speech saw Minister of Finance, Enoch Godongwana announced two renewable energy tax incentives aimed at addressing the country’s energy crisis and encouraging private investment into expanding electricity generation.  On Tuesday, the 25th of April 2023, National Treasury and SARS published draft legislative amendments for urgent public comment, due to the proposed early effective dates for implementation and to provide assurance for individuals and businesses that would like to immediately invest in renewable energy.

This will allow for a timeous and detailed second process of public comment when these incentives will be incorporated into a more comprehensive 2023 draft Taxation Law Amendment Bill (TLAB) in July 2023. 

Ruan van Jaarsveld, Anuva Green Energy portfolio manager at tax-leveraged, investment specialist firm Anuva Investments says that these incentives are a great way to motivate businesses to invest in renewable energy solutions, and to support individuals in making green investments but time is of the essence to have these incentives formally drafted for businesses and individuals to benefit from the tax breaks within the proposed time frame.

Expansion of the Renewable Energy Tax Incentive for businesses

This incentive will be available from the 1st of March 2023 to the 1st of March 2025:

  • Businesses will be able to claim a deduction for 125% of the cost of buying new and unused assets with no threshold on generation capacity.
  • The assets should be used for the generation of electricity from wind power, photovoltaic solar energy, concentrated solar energy, hydropower, or biomass.
  • If any machinery, plant, implement, utensil, article, or improvement is mounted on or affixed to a foundation or supporting structure, and the structure was brought into use between the 1st of March 2023 and the 1st of March 2025, it will be counted as part of the asset.
  • The deduction will not be allowed for any asset that has been leased (unless under special circumstances), or that the taxpayer owns as a seller in terms of an instalment sale agreement, or any asset that has already been granted an allowance under section 12B.
  • If a taxpayer disposes of an asset before 1 March 2026, they must include 25% of the cost of the asset that is recovered as income, in addition to the 100% included in terms of Section 8(4)(a).

Solar Energy tax credit for individuals

This incentive will be available between the 1st of March 2023 and the 1st of March 2024:

  • Individuals will be able to claim a credit for 25% of the cost of new and unused solar PV panels with a minimum generation capacity of not less than 275W each, that are connected to the distribution board of a residence and have an electrical certificate of compliance.
  • The credit is limited to an amount not exceeding R15 000. If more than one person incurs any cost in respect of the acquisition of a solar photovoltaic panel, they must share the deduction proportionally.
  • If an individual sells a solar PV panel that qualified for the credit on or before 1 March 2025, the amount of the credit that was allowed as a deduction must be included as income in the year of assessment. There is no recoupment of the credit if the individual disposes of or vacates the residence to which the solar PV panel is affixed.
  • The credit will not be allowed for any asset that has already been granted an allowance under section 12B or 12BA.

The due date for public comment is on the 15th of May 2023.  

It is worth noting that public comments may also include proposals by body corporates on how the rooftop solar incentive could be applied to members of the body corporate if a body corporate were to install solar PV panels for members’ benefit,” adds van Jaarsveld.  

Similarly, it would be a nice opportunity to get clarity on why the inclusion of batteries, in addition to solar panels, has not been considered to qualify for the renewable energy tax incentive?