A Comprehensive Guide to Solar Rebates and Tax Incentives in South Africa

South Africans are all tired of load shedding, and everyone knows that 2023 has had more days of load shedding than ever before. South Africa's energy crisis will probably get worse before it gets better.

If you're considering installing solar panels in South Africa, you may be eligible for certain tax breaks for your company or yourself. This guide provides an overview of the various tax breaks and incentives available, including how to qualify and apply for them. By taking advantage of these opportunities, you can pay less tax, reduce your carbon footprint and keep the lights on at the same time.

Overview of solar rebates and tax benefits in South Africa

South Africa currently has two tax incentive programs for renewable energy. One for businesses and one for individuals. In this short guide, we will discuss these incentives and how you can reduce your or your business's tax liability.

What is the difference between a tax deduction and a rebate?

The tax incentive for an individual takes the form of a tax rebate whereas for companies, the tax break is a deduction from taxable income. Before we go into detail of exactly what the tax breaks entail, it is imperative that you understand the difference between a tax rebate and a tax deduction.

A tax rebate is a reduction of your income tax liability, while a tax deduction is a reduction of your taxable income.

Example 1: Peter has a personal income tax liability of R20,000. He qualifies for the new solar panel rebate and is eligible for a rebate of R12,500. His income tax liability is reduced by R12,500 and he therefore only has to pay R7,500 in income tax.

Example 2: ABC (Pty) Ltd's taxable income for the year is R100,000. ABC qualifies for an additional tax deduction or allowance (solar allowance in this case) of R10,000, which reduces its taxable income to R90,000. ABC (Pty) Ltd's income tax liability will be R24,300 (R90,000 x 28%) Bear in mind that the corporate income tax rate has been lowered from 28% to 27% for companies with a year-end on or after 31 March 2023.

Tax incentive for individuals

During the budget speech in February 2023, Finance Minister Godongwana announced a tax rebate for the installation of solar panels. The main objective of this rebate is to incentivise individuals to invest in clean energy and to increase energy generation. For now, the incentive will only be available for the 2023 / 2024 year of assessment (the year ended 29 February 2024).

How will it work?

Individual taxpayers will be able to deduct 25% of the cost of new, unused solar panels up to a limit of R15,000 per person, from their income tax liability.

The tax break is limited to the acquisition of solar panels only, and does not include the solar installation costs in the calculation of the rebate. The cost of the batteries and inverters won't qualify for the rebate either. The reason for this limitation is because batteries and inverters do not increase generation capacity, but the solar panels do.

The individual taxpayer will be able to claim the rebate if they have the tax invoice that shows the cost of the solar panels as well as the Certificate of Compliance which indicates that the solar panels were brought into use for the first time in the 2023 / 2024 tax year (The year ended 29 February 2024).

Provisional taxpayers will be able to claim the rebate from their provisional tax payments while PAYE taxpayers will only be able to claim the rebate on assessment of their tax returns.

Example 3: Ben buys and installs five new, unused solar panels at a cost of R4,000 per panel. He will be able to deduct R5,000 from his income tax liability (5 x R4,000 = R20,000; R20,000 x 25% = R5,000). Peter buys and installs 20 new, unused solar panels at a cost of R4,000 per panel. He will only be able to deduct R15,000 from his income tax liability, even though 25% of the total cost of R80,000 is R20,000. This is because the rebate is limited to R15,000 per person (20 x R4,000 = R80,000; R80,000 x 25% = R20,000; Rebate limited to R15,000).

What is the small print?

In order for an individual taxpayer to qualify for the rebate, the following conditions must to be met:

• The solar panels have to be new and unused. It doesn't matter if it is installed as a new system, or as an extension of an existing system.
• The solar panels will have to have a minimum capacity of 275W. The cost and installation of batteries and inverters will not qualify for the rebate.
• The panels must be installed at a private residence that is used primarily for domestic purposes.
• The taxpayer will have to get a certificate of compliance from the installer to prove the installation.
• The solar panels must form part of a system that is connected to the residence's mains distribution box.
• The solar panels have to be brought into use for the first time in the 2023 / 2024 year of assessment. (Between 01 March 2023 and 29 February 2024)
• Portable panels will not qualify for the rebate.

Tax incentive for businesses

The original section 12B deduction of the Income Tax Act allowed South African companies to deduct 100% of the cost of their renewable power installation from their taxable income. From 01 March 2023 to 28 February 2025, the section 12B Allowance was increased to 125% of the cost of their new, unused systems. 

How will it work?

Companies will be able to deduct 125% of the cost of their new investment in renewable energy in the year that it is brought into use.

Example 4: Company C is a registered VAT vendor and has invested in a renewable energy project with a cost of R1,150,000 including VAT. Company C will be able to claim R150,000 VAT (R1,150,000 x 15/115) and will be able to deduct R1,250,000 from its taxable income. The impact on its corporate income tax liability will be R337,500 (R1,250,000 x 27%). Bear in mind that the corporate income tax rate has been lowered from 28% to 27% for companies with a year-end on or after 31 March 2023. 

Conclusion

These tax incentives were created to give taxpayers some relief in the rising cost of energy, and to promote the use of cleaner energy sources. Although they are not as beneficial as we all hoped for, it is a good start to…..

Hopefully in future, government would consider further benefits and relief options to taxpayers.

If you would like to know more about the solar and other renewable energy tax incentives, contact Nuvia or make an appointment for a free consultation.

JM Bennett is a Chartered Accountant (SA), a Registered Auditor and a Registered Tax practitioner. He obtained an MBA from Wits Business School in 2020 and a Higher Diploma in Tax from the International Institute of Tax and Finance in 2016. He has almost 20 years of experience in accounting, auditing and tax of SMEs.