100% Company Income Tax Write-Off In First Year For Solar

In January of 2016 the Income Tax Act of South Africa was amended to allow for the faster depreciation of renewable energy implementations by companies wishing to install their own power plants. Previously the standard 50/30/20 rule, as applicable to most standard plant machinery, was applied to the installation of photovoltaic systems for the purpose of power generation. This amendment allows companies to be able to write off 100% of the installation of systems with less than 1MW (Mega Watt) of generation capacity within the first year of implementation, regardless of whether the solar plant has been producing for the full tax year, for larger solar implementations the standard rules apply.

The costs included under the provision are:

• They physical hardware (Inverter, Solar Panels, etc.)
• The labour costs involved
• The costs for mounting and rackingfor the solar installation, including the supporting structures or foundations
• The electrical integration into your existing electrical circuits

Should the installation be financed, the finance charges may not be claimed under section 12(b) as they are deductible under Section 11(bA).

The other provision to this act is that the system/asset has to be brought into use for the purpose of the taxpayer’s trade.

The section of the 2016 Income Tax Act dealing with this can be found below:

“Machinery, plant, implements, utensils or articles or improvements thereto (the asset) used in farming or production of renewable energy An allowance will be granted for assets owned by a taxpayer or acquired by the taxpayer as purchaser in terms of an “installment credit agreement” as defined in the VAT Act, and brought into use for the first time by the taxpayer –

in the carrying on of farming operations except –

• • • any motor vehicle of which the sole primary function is the conveyance of persons;
    • any caravan;
    • any aircraft (other than an aircraft used solely or mainly for crop spraying); or
    • any office furniture or equipment);

for the purpose of trade to be used for the production of bio-diesel or bio-ethanol;

for the purpose of his trade to generate electricity from –

• • • wind power;
    • photovoltaic solar energy of more than 1 megawatt; not exceeding 1 megawatt; or concentrated solar energy;
    • hydropower to produce electricity of not more than 30 megawatts; and
    • biomass comprising organic wastes, landfill gas or plant material.

An allowance for –

• • • assets used to generate electricity from photovoltaic solar energy not exceeding 1 megawatt, equal to 100% (in respect of years of assessment commencing on or after 1 January 2016); and
    • all other assets, equal to 50% of the cost of the asset to the taxpayer in the year of assessment (first year of assessment) in which the asset is so brought into use; 30% of such cost in the second year of assessment; and 20% of such cost in the third year of assessment,

will be granted [see section 12B (2)].

Any foundation or supporting structure to which the abovementioned assets are mounted or affixed forms part of the asset and qualifies for the allowance.

The depreciable cost of the asset is the lesser of –

• • • the actual cost to the taxpayer; or

the arm’ s length cash price at the time of acquisition.

Any recoupment of the allowance granted will be accounted for in exactly the same manner as mentioned in 2.6.4.”