Solar Panel Tax Incentive for Individuals
The objective of the newly announced solar panel tax incentive for individuals announced by the Minster of Finance in the 2023/24 budget speech is to encourage households to invest in clean electricity generation capacity to supplement electricity supply. The incentive will only be available for one year to encourage investment as soon as possible.
The incentive is only available for individuals who pay personal income tax. The rebate can be claimed against their tax liability. This rebate is not intended for solar installations at business premises.
What can be claimed?
Individuals can claim a rebate of 25% of the cost of new and unused solar photovoltaic (PV) panels, up to a maximum of R15 000 per individual. Even though the expenditure will be of a private and domestic nature, the deduction of which is normally prohibited, the legislation will specifically allow for this rebate to be claimed by a natural person.
For example, a person buys ten solar PV panels at the cost of R4000 per panel (total cost of R40 000). That person could claim 25% of the cost up to R15 000, so R10 000. A different person can buy 20 panels at the cost of R4000 per panel (total cost of R80 000). The calculation of 25% adds up to R20 000, but they can only claim R15 000.
What are the requirements?
Only new and unused solar PV panels qualify for this deduction. This ensures that the capacity is in addition to what the country already has in place. The panels can be installed as part of a new system or as an extension of an existing system.
Only solar PV panels with a minimum capacity of 275W per panel (design output) qualify for the rebate. Other components of a system – batteries, inverters, fittings or diesel generators – and installation costs do not qualify. Portable panels will also not qualify.
Solar PV panels must be installed at a residence that an individual mainly uses for domestic purposes. From previous case law, “mainly” is interpreted as more than 50%. Evidence of the installation will be a certificate of compliance in terms of the Electrical Installation Regulations, 2009, to ensure the safety of the installation and compliance with electric regulations.
In addition, the solar PV panels must form part of a system that is connected to the main distribution of the private residence.
The rebate applies to qualifying solar PV panels brought into use for the first time from 1 March 2023 to 29 February 2024.
How can people claim the incentive?
Individuals will be able to claim the rebate if they have a VAT invoice that indicates the cost of the solar PV panels separately from other items, along with proof of payment as well as a Certificate of Compliance evidencing 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 can claim the rebate on assessment during the 2023/24 filing season. Provisional taxpayers can claim the rebate against provisional and final payments.
Why only solar panels, not diesel generators, inverters, batteries, and installation costs?
National Treasury provided the following explanation:
“Diesel generators are often used as an emergency backup but are not a sustainable solution to generate additional power. They increase the demand for fuel and have negative environmental impacts. Including generators would detract from the climate objectives government is committed to, where fiscal instruments like the carbon tax play an important role.
While an inverter and batteries are required to use solar panels, inverters and batteries can be operated without solar panels – in which case they offer no additional capacity to the system. The focus on solar PV panels is to maximise the use of limited government funds to get as much additional generation capacity as possible – and recognises that government will have to focus on a partial rebate of the components most directly linked to generation. This is why installation costs are not included either.”
What about people who rent their homes/sectional titles/body corporates?
There is no ownership requirement for the incentive, so installations by landlords or renters would be eligible, but only the party that pays for the solar panels can claim the rebate.
If occupants can install their own panels, then the tax incentive applies to all other individuals.
A body corporate will not be able to claim this incentive. It is unclear whether many body corporates will purchase solar installations instead of leasing or other options to avoid up-front costs for members. Government will be consulting on this aspect. If there is widespread interest in body corporates purchasing and installing solar panels, then payment (e.g. special levies) for solar installations levied from the occupants would have to indicate the cost of the solar panels separately – as would be the case for any other claimant, per the information provided by National Treasury.
The applicable Certificate of Compliance data must also be shared with SARS. Because there would be some adjustments to ensure that the right people could claim the right amounts, there will be a consultation to determine the required approach and documentation.
Will SARS need to be paid back if the home is sold after installing solar PV panels?
There will be no recoupment if you sell your house after having benefitted from this incentive, as the solar panels will likely remain fixed to the house and used by the following owner – still enabling an expansion in a generation. There will, however, be a claw-back of the rebate if you sell the panels themselves within one year after they were first brought into use to counter potential abuse.
When will this become part of tax legislation?
This incentive will be included in the annual tax amendments. A draft version of the legislation will be published for public comment no later than the publication date of the 2023 Draft Taxation Laws Amendment Bill. The Minister tables tax bills during the Medium Term Budget Policy Statement (MTBPS) in October each year. Parliament considers the amendments, after which the President can assent to the amendments – usually by January of the year after the announcement.
Expansion of the renewable energy tax incentive for businesses
The tax incentive is available in Section 12B for businesses to promote renewable energy will be temporarily expanded to encourage rapid private investment to alleviate the energy crisis.
The current incentive allows businesses to deduct the costs of qualifying investments over a one- or three-year period, which creates a cash flow benefit in the early years of a project. Businesses can deduct 50 per cent of the costs in the first year, 30 per cent in the second and 20 per cent in the third for qualifying investments in wind, concentrated solar, hydropower below 30 megawatts (MW), biomass and photovoltaic (PV) projects above 1 MW. Investors in PV projects below 1 MW can deduct 100% of the cost in the first year.
Under the expanded incentive, businesses can claim a 125 per cent deduction in the first year for all renewable energy projects with no thresholds on generation capacity. The adjusted incentive will only be available for investments brought into use for the first time between 1 March 2023 and 28 February 2025. The deduction will reduce tax liability for a business with positive taxable income. For example, a renewable energy investment of R1 million would qualify for a deduction of R1.25 million. Using the current corporate tax rate, this deduction could reduce the corporate income tax liability of a company by R337 500 in the first year of operation.
Prepared by CORE TAX
For more information, contact 051-448 8188 / info@coretax.co.za