From the start of 2016, Section 12B of the Income Tax Act was amended from a three year (50% – 30% – 20%) accelerated depreciation allowance on renewable energy to an even quicker depreciation allowance of only one year (100%). This is great news for anyone that is planning on installing a solar PV system at their business or commercial property.
The amendment of the Act is to serve as an incentive for the development of smaller photo-voltaic solar energy projects. It also aims to address the constant energy shortages we face in South Africa. This is one of many reasons that the installation of Solar PV is affordable.
What this amended Act means for someone that installs and owns a solar PV system is that they get a tax allowance at 28% of the full price of the installation of the solar PV system. In simple terms, if you paid R1,000,000 for the installation of your solar PV system, you can claim R280,000 of that back in the same year your solar PV project was completed. As you can see below, it is a higher return than the cumulative return over three years with the previous accelerated depreciation allowance.
Section 12B of this Income Tax Act provides for a capital allowance for movable assets used in the production of renewable energy. More specifically, it allows for a deduction equal to 100% basis in respect of any plant or machinery brought into use in a year of assessment for the first time and used in a process of manufacture or any other process which is of a similar nature. It is important to note that the allowance is only available if the asset is brought into use for the first time by you. In other words, the allowance is not limited to new or unused assets. The wording merely prevents you from claiming the section 12B allowance twice on the same asset.
The new accelerated depreciation allowance is there to encourage you to own your own solar PV system and to give you the maximum benefit. If you want to understand the impact this can have on you, contact Brendon Malan at email@example.com or you can click this form to get started.