The National Treasury has published an updated FAQ guide on its renewable energy tax incentive for businesses, drawing a clear line on the inclusion of batteries and inverters in the tax break.
The department said that confusion has crept in because the business tax incentive was announced alongside the individual tax incentive, and each tax break has a different approach to components like batteries and inverters.
The individual tax break – which offers up to R15,000 in rebates for individuals who install solar – only applies to the cost of new solar panels purchased. Inverters, batteries and other costs are explicitly excluded from this.
The renewable energy tax break for businesses, however, allows a company looking to take advantage of the incentive to include these component costs, as long as they are part of a solar generation system.
“Assets that are used in the generation of electricity will qualify for the incentive. This includes supporting structures on which these assets are mounted or affixed to,” Treasury said.
“It is important that the foundation or supporting structure is designed specifically for that asset and constructed in such a manner that it is or should be regarded as being integrated with that asset; and the useful life of the foundation or supporting structure is or will be limited to the useful life of the asset mounted thereon or affixed thereto.”
If storage (batteries) and conversion (inverter) assets form part of a system of assets that together produce electricity – which is aligned to the objective of the incentive – it is likely that they will qualify for this renewable incentive, the department said.
However, if the taxpayer is simply drawing power from the grid and storing it to reduce the impact of load shedding – a non-solar or renewable generating system – such storage assets will likely not qualify.
“The latter example is not aligned to the policy objective of encouraging more generation capacity and should not be claimable under the proposed section 12BA. This is why it is important that SARS retains the ability to apply a facts and circumstances approach to each case,” Treasury said.
Why individuals won’t get a tax break for inverters and batteries
The department added that the personal income tax and corporate income tax systems operate differently, which is why the tax incentives can operate differently.
“It is not common for an individual to deduct the cost of an expense or investment from their taxable income. The solar rebate is an exception to this rule and targets solar panels exclusively given that they are directly linked to additional generation capacity,” Treasury said.
While batteries and inverters can be used on their own to provide a private benefit to a particular
household, the addition of solar panels enhances generation supply, which provides a public benefit.
By contrast, it is common for a business to deduct costs in relation to assets used in the production of income, and there is no reason to specifically exclude assets such as batteries and inverters, unless they are being used in isolation to draw and store power from the grid, as this detracts from the primary objective of the temporarily enhanced renewable energy incentive – to encourage investment in additional generation capacity.