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Solar tax deductions for businesses: expansion of existing incentive
- 20 March 2023
- Accounting
- South African Accounting Academy
As stated in the 2023 Budget Speech, the tax incentive available for businesses to promote renewable energy would be temporarily expanded to encourage rapid private investment to alleviate the energy crisis.
The current incentive allows businesses to deduct the costs of qualifying investments over a one- or three-year period, which creates a cash flow benefit in the early years of a project.
There will be no thresholds on the size of the projects that qualify, and the incentive will be available for two years to stimulate investment in the short-term.
Currently, businesses are able to deduct 50% of the costs in the first year, 30% in the second and 20% in the third for qualifying investments in wind, concentrated solar, hydropower below 30 megawatts (MW), biomass and photovoltaic (PV) projects above 1 MW.
Investors in PV projects below 1 MW are able to deduct 100% of the cost in the first year.
Under the expanded incentive, businesses will be able to claim a 125% deduction in the first year for all renewable energy projects with no thresholds on generation capacity.
The adjusted incentive will only be available for investments brought into use for the first time between 1 March 2023 and 28 February 2025.
Click here to access the Government Newsletter:
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 a business, you might want to use the expanded renewable energy tax incentive over the next 2 years, or even advise your clients accordingly.
- 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 a business, your clients might want to use the expanded renewable energy tax incentive over the next 2 years.
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