Your Company Can Benefit From Section 12B and Section 12BA Capital Allowances:
This note will attempt to summarise sections 12B and 12BA of the South African Income Tax Act 58 of 1962 ('The Act') to inform Sunsolv's clientele of the tax advantages associated with solar system purchases. This document applies only to businesses that have registered to pay income taxes with SARS (South African Revenue Service).
Solar power is being adopted by South African enterprises at an unprecedented rate due to the low levels of energy availability and the ever-increasing prices of energy in the medium to long term. The financial benefits of owning a solar power system are further enhanced by SARS's accelerated capital allowances, which further increase the return on investment delivered by solar electricity cost savings.
Allowances for Capital: What Are They?
One advantage of filing an annual tax return is that you can deduct the depreciation you have paid on your plant, machinery, and equipment, as well as any other immovable or moveable capital assets, from your gross income. The "capital allowances" provided by SARS enable a deduction from turnover for the use of the asset, which reduces overall taxable income, in a manner similar to how depreciation expenditure would be accounted for when computing net profit on an income statement. Keep in mind that the general rule is that your yearly tax savings will be proportional to the amount of the capital allowance or deduction that SARS permits.
Capital Allowances of Sections 12B and 12BA Solar In a Nutshell:
Accelerated capital allowances are provided for under sections 12B and 12BA of the Act. This means that assets falling under these sections are eligible for greater yearly tax depreciation deductions than assets falling under other sections of the Act. Personal property, including "equipment, plant, implements, utensils and goods utilized in the production of renewable energy," is covered by this provision.
Section 12B Permits
Either the taxpayer must own the item or it must have been obtained under an instalment credit arrangement (ICA) for it to be considered relevant.
*Not previously used by any other entity; instead, brought into use by the tax paying entity for the first time.
Utilized for the benefit of the taxpayer, in producing power from solar photovoltaics (i.e., powering your company's daily activities).
The following amounts are deductible:
The calculations are based on the price tag of the 'generation assets,' which encompass things like photovoltaic panels, inverters for batteries, backup systems for batteries, individual battery units and their parts, and the necessary foundations and supporting structures for the system to endure.
The cost in this case is the lower of two things: ○ The real cost to the government; or ○ The market value of the generation assets when they were bought, plus the direct cost of putting it up (including labor, transportation, and commissioning fees).
For solar capacities less than 1 MW, the deductions are 100% in the first year, regardless of how much of the year the asset was actually used. For capacities greater than 1 MW, the deductions are 50% in the first year, 30% in the second year, and 20% in the third year. Caution: Not Included
Solar assets leased under an operational lease of less than 5 years do not qualify for amounts that can be deducted.
Businesses cannot deduct the whole cost of their solar system from their taxable income if their available taxable income falls below R0; this is because the s12B allowance is only applicable to taxable income. The amount you can deduct from your taxable income when you buy a solar system is limited to either 100% of the cost of the system or the value of your taxable income before the deduction, depending on your individual circumstances (as mentioned in point 4 above).
If your solar system's capacity is less than 1 mW, you will either have a 27% reduction in your tax bill in the first year to R0 or no tax charge at all.
12BA Permits
s12BA is an enhanced forward version of s12B, which is applicable in all the same situations. However, there are a few differences to keep in mind:
deductions related to solar capacity less than 1 mW: An initial investment of up to 125% of the cost can be written off in the first year, regardless of how much use the item got. This means that the cost of the solar asset can be deducted from taxable income by an extra 25%.
The benefits of s12BA are accessible for a limited time only, as they will no longer be applicable to qualified solar assets purchased after 28 February 2025. Taxpayers will then be required to use s12B.Nobody can claim the allowances under sections 12BA and 12B at the same time. Therefore, taxpayers can claim section 12BA for their solar assets that were bought and used for the first time (<1mW in capacity) until February 28, 2025. After this date, any further purchases of solar assets will be subject to section 12B.
In order to claim s12BA/s12B, what documents must I provide to SARS?
To claim the deduction while filing your annual income tax return, you will need: ● A SunSolv tax invoice.
Documentation showing that the Sunsolv Tax Invoice has been paid.
Before filing your income tax returns, Sunsolv recommends consulting with your accountants on how to implement the advice given here. Please note that the purpose of this article is to highlight and summarise important points from the Income Tax Act and should not be used as financial advice in any way.
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