How SARS will deal with anyone trying to abuse new rooftop solar tax breaks

The proposed new law regarding the tax credit available to individuals who install solar panels has been announced.

The system will be introduced in the form of a tax credit, as opposed to a tax deduction.

According to Tax Consulting SA, a tax credit is good because it gives individuals a uniform opportunity to claim the same tax credit – with a deduction form, a sliding scale is applied, which depends on each individual’s income and tax bracket.

The law is open for public comment until 15 May 2023. It includes further details on how the tax credits will work – as well as proposes ways to combat instances where individuals may try to game the system.

Specifically, anyone trying to get the tax credit and then selling the panel they got the credit for.

Here, SARS is proposing an ‘anti-avoidance’ provision in the laws which provides that if a solar panel, in respect of which the solar energy tax credit was previously claimed, is sold on or before 1 March 2025, the credit so previously applied will be disallowed.

This would mean that anyone who gets access to the tax break would have to keep possession of the solar panel(s) in question for at least two years.

If the panel is sold and the credit revoked, it is proposed that the person who claimed the tax credit will then be subject to normal tax, as if that credit was not applied in the applicable year of assessment.

This provision will not apply where the individual sells or vacates the residence to which the solar panels were installed.

How the tax breaks work

According to Tax Consulting SA, the tax credits are made up of four key ingredients.

Individuals who claim the solar energy tax credit must ensure that the following requirements are met:

• The solar panels must be new and unused; and acquired by the person, and for the first time brought into use by such person, from 1 March 2023 to 29 February 2024;
• They must have a generation capacity of at least 275 watts;
• The solar panels must be a component in a system which connects to a distribution board at a person’s residence, which residence is mainly used for domestic purposes; and
• An electrical compliance certificate must be issued to such person, in respect of the installation of the solar panels, under the Electrical Installation Regulations, 2009.

Although the solar energy tax credit system was announced before the year of assessment commenced, it should be noted that the law has not yet been enacted, and only the draft law has been published.

It will, however, only be available for one year and take effect from 1 March 2023 until 29 February 2024.

Tax Consulting previously warned that solar installers will be compelled to submit third-party information to SARS and will have to reapproach clients for whom solar panels were installed from 1 March 2023, to ensure they are in possession of the information required to be submitted to SARS.

The solar energy tax credit is calculated on 25% of the “actual cost” of the solar panels and is limited to a maximum amount of R15 000.00.

The credit may only be claimed by the individual who “actually incurred” the cost of the solar panels. Therefore, the owner or occupant of the property will be entitled to claim the proposed tax credit.

The National Treasury and the South African Revenue Service (SARS) have called on the public to comment on the draft legislative amendments, and are looking at possible expansions of the laws.

This include proposals by body corporates on how the rooftop solar incentive could be applied to members of the body corporate if a body corporate were to install solar PV panels for members’ benefit.

Read: SARS looking at how rooftop solar tax breaks can be expanded – including to complexes and estates