*Disclaimer: Versofy Solar is in no way qualified to give tax advice. The below is a simple article explaining the Section 12 B incentive and is not intended, nor should it be considered tax advice. Always consult a tax professional.
What is the Section 12 B (S12B) tax allowance?
In the context of solar, the Section 12 B allowance allows you to accelerate the depreciation of your solar system in the year of installation. This effectively allows you to write off the cost of your system (including the installation) as a depreciation expense against your taxable income. Resulting in an effective 28% saving (company tax).
Who is Section 12 B for?
The section 12 B allowance is only for installations done on business premises paid for by the business. I.e. you can not claim the allowance on a residential system.
Why is it in place?
The section 12 B allowance was put in place by government as an incentive for businesses to make use of clean and renewable energy (Solar, Wind, Hydro, and Biomass).
Does the system need to be new?
Section 12B of the Income Tax Act No. 58 of 1962, as amended (the ‘Act’), provides for a capital allowance for movable assets used in the production of renewable energy. More specifically, it allows for a deduction equal to 100% of the cost in respect of any plant or machinery brought into use in a year of assessment for the first time for the purpose of that taxpayer’s trade to be used in the generation of electricity. The cost of the asset includes supporting structures and improvements.
It is important to note that the allowance is only available if the asset is brought into use for the first time by the taxpayer. In other words, the allowance is not limited to new or unused assets. The wording merely prevents the taxpayer from claiming the section 12B allowance twice on the same asset.
As the above suggests, the system is not limited to new assets, but rather prevents you claiming on the same asset more than once.
What happens if I finance my solar system?
The incentive would only be available if you structure the finance such that the asset sits on your company’s balance sheet. e.g. An Instalment Sale Agreement.
On a rent-to-own structure for example, the asset sits on the lenders balance sheet and thus the incentive is not applicable. You do however get the benefits of writing off your monthly rental as a taxable expense.
Considering installing a solar system at your work premises? It is certainly worth exploring the Section 12 B allowance with your accountant. The 28% saving on your system dramatically decreases your payback period and subsequent ROI.
If you are wanting a quote for a commercial system, please feel free to get started here.
For more info on section 12 B, check out: https://www.thesait.org.za/news/269950/Powering-up-A-look-at-section-12B-allowance-for-renewable-energy-machinery.htm