Solar panels: A few point-worthy aspects to remember: Renewable energy tax incentives

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Solar panels: A few point-worthy aspects to remember: Renewable energy tax incentives

• 12 May 2023
• Accounting
• South African Accounting Academy

In order to be eligible for the Proposed Section 6C tax credit, the solar panels must meet these further requirements:

• They must be new, unused and acquired and brought into use for the first time on or after 1 March 2023 and before 1 March 2024 (to encourage investment as soon as possible this incentive will only be available for one year);
• They must have a minimum generation capacity of at least 275W per panel;
• It is required that they form part of a system that is connected to the distribution board of a residence that is mainly used by an individual for domestic purposes; and
• An electrical certificate of compliance must be issued to the individual in terms of the Electrical Installation Regulations, 2009.

A few point-worthy aspects in respect of the solar tax credit are:

• The tax credit is only available to natural persons and the acquisition of solar panels by, say, a family trust which owns a family residence, will not qualify for the credit. However, there is no requirement that the natural person incurring the cost of the solar panels and claiming the credit, must own the residence, so that a natural person occupying a trust property can, in principle, qualify for the credit.
• As an electrical certificate of compliance is a requirement for the credit, each and every individual claiming the credit should be issued such a certificate. If multiple individuals acquire the solar panels, it would be wise to have the electrical certificate issued to each one of them.
• As the tax credit for natural persons only applies if none of the other capital allowances available for renewable energy is available, it should be noted that natural persons are not automatically entitled to the credit, nor are they automatically limited to this credit (noting that the other allowances may well be more meaningful to a taxpayer).
• A taxpayer can generally add the cost of improvements to the base cost for the asset. However, costs which benefited from a deduction in determining the taxable income of a person are not eligible to increase the base cost of an asset. The tax credit available to natural persons in respect of solar panels affixed for domestic residences, does not take the form of a deduction in determining the taxable income of the person, and therefore it is conceivable that the cost of solar panels which can form part of a natural person’s base cost for a residence, can increase the base cost of the residence in addition to the benefit of the solar tax credit.

Enhanced renewable energy tax allowance: Business

The enhanced renewable energy allowance is available only to “owners” who purchased the qualifying machinery, plant, etc in terms of an “instalment credit agreement” as defined in paragraph (a) of that definition in section 1 of the Value-Added Tax Act, and is specifically not available if ownership of the energy-producing asset is retained by the taxpayer as a seller in terms of an “instalment credit agreement”. The existing renewable energy tax allowance is available to all owners or purchasers under “instalment credit agreements” of qualifying energy-producing assets or purchasers in terms of an instalment credit agreement. It is, therefore, not clear why an owner who purchases qualifying energy-producing assets in terms of a cash sale cannot qualify for the enhanced allowance. The Explanatory Memorandum which was published with the draft legislation does not discuss this distinction and it may be a drafting oversight which will be rectified in the final batch of legislation.

• It is not limited to the cost of solar panels or even solar energy, but applies to the cost of all qualifying machinery, plant, implements, utensils and articles used in the production of renewable energy in the form of wind power, photovoltaic or concentrated solar energy, hydro-power or biomass comprising organic waste, landfill gas or plant material, and regardless of their energy-generation capacity;
• It is not subject to a cap, save that the cost cannot exceed arm’s length third party cost; and
• The allowance is available to lessors in limited circumstances.

Click here to access this article:

https://www.werksmans.com/legal-updates-and-opinions/renewable-energy-tax-incentives/

Relevance to Auditors, Independent Reviewers & Accountants:

• The Income Tax Act is yet another piece of legislation that your clients must comply with, and which you must assess compliance with.  If they don’t comply with the relevant laws and regulations, you have certain reporting obligations in terms of NOCLAR (NOn-Compliance with Laws And Regulations) – this could include reporting to management, qualifying your audit opinion, reporting a Reportable Irregularity, etc.
• As an auditor, independent reviewer, an accountant or tax practitioner, you need to be aware of the proposed changes to tax legislation that is brought about by the annual budget speech, as well as articles that expand on or might clarify some known issues.
• As an employer and taxpayer, you also need to comply with the Income Tax Act in your workplace

Relevance to Your clients:

• An entity (company or close corporation) has a duty to comply with the Income Tax Act, and directors have to fulfil their duties accordingly, otherwise they could be held liable.
• It is important to be aware of the proposed changes to tax legislation that is brought about by the annual budget speech, as well as articles that expand on or might clarify some known issues.

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