SARS gets serious about solar

 ·29 Mar 2024

While the solar tax incentive for individuals in South Africa is over, the broader Section 12B incentive for companies and investors is still very much alive – and the South African Revenue Service (SARS) has cleared up quite a bit on what qualifies.

According to Jerome Brink, director of tax and exchange control at Cliff Dekker Hofmeyr, a recent ruling issued by SARS on the 12B – known as Binding Class Ruling 88 (BCR 88) – gives important insight into the taxman’s interpretation of the incentive when dealing with tax claims.

Brink explained that Section 12B provides taxpayers with some relief from tax by providing for an accelerated capital depreciation allowance of 100% or on a 50/30/20 basis on the costs incurred on plant and equipment utilised in the taxpayer’s trade of generating electricity from renewable sources.

It also includes costs incurred with respect to the supporting structures.

The sister provision of section 12B, section 12BA, includes a temporary separate allowance of 125% of the costs for new and unused assets brought into use for the first time on or after 1 March 2023 but before 1 March 2025.

However, one can only claim one of section 12B or section 12BA and not both.

“While section 12B, on the face of it, appears relatively simple and straightforward compared to other tax provisions – for the uninitiated, it could result in unwanted consequences and, in a worst-case scenario, the non-application of the allowance,” he said.

What it covers

One of the key questions around the incentive is what types of assets factually fall within the allowance, Brink said.

The legal expert noted that the new BCR 88 provides some insight into this as it refers to a detailed list of “generation assets” that would qualify for the allowance.

“Apart from the expected assets, such as the solar photovoltaic (PV) panels themselves, battery inverters, battery backup systems and battery units, and their component parts, are also included in the definition of generation assets,” he said.

This reinforces that if batteries are sufficiently integrated into a renewable energy system and form part of the system’s energy continuum, then they will also qualify for the allowance.

“It recognises that stored energy derived from renewable sources falls within the parameters of the allowance, which is important because the sun does not shine at night when energy needs may be at their highest in certain instances.”

Notably, overhead power infrastructure and towers, including accessories and foundations, are also included in the ambit of “generation assets”, even though it is not clear from the ruling what exactly these assets are, why they are needed and how they are integrated into the solar system, Brink said.

“However, it certainly builds on the extent of critical assets required to operate a solar system that will qualify for the allowance.”

The full list of generation assets consists of the following types of assets is as follows:

  • Solar photovoltaic panels
  • Solar photovoltaic panel mounting structures (fixed)
  • Solar photovoltaic panel mounting structures (tracking)
  • Solar tracking motors, control hardware and structural components
  • Grid-tied central inverters
  • Grid-tied string inverters
  • Solar resource measurement equipment and accessories
  • Battery inverters
  • Battery units, cable connections, containers, switchgear and associated control systems
  • Step-up transformers and accessories
  • Power transformers and accessories
  • High and medium-voltage switchgear
  • Battery backup systems for electrical protection systems
  • Low, medium and high-voltage cabling
  • Electrical distribution boards
  • Electricity Metering (four-quadrant tariff metering)
  • Insulation equipment (High and medium voltage)
  • Reactive power compensation equipment
  • Power quality measurement and correction equipment
  • SCADA and power plant control systems
  • Overhead power infrastructure and towers, including accessories and foundations


Brink added that the BCR 88 also clarifies how the incentive applies to partnerships – one of the more attractive business models in South Africa:

  • Each class member (i.e. limited partner) is deemed to carry on the trade of the partnership, which is important because section 12B requires the taxpayer that is claiming the allowance to have carried on a trade; and
  • Each class member (i.e. limited partner) is entitled to deduct its proportionate share of the partnership’s deductions and allowances, including that allowed under section 12B, thereby confirming that each limited partner has co-ownership of the relevant underlying assets, which is a prerequisite for the application of the allowance.

“What is also interesting to note is that the ruling mentions that once the necessary capital commitments have been secured, the partnership will be closed,” Brink said.

“It will not be open-ended for further capital contributions by new investors, except where a new limited partner is substituted for an existing limited partner who subsequently withdraws. This is arguably an important differential.”

Read: South Africa’s insane year for solar

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