• Last year, SARS introduced a solar energy tax credit to encourage the installation of solar systems in homes and businesses.
• If you haven’t installed solar power in your home yet, it’s too late.
• However, there is still the possibility of taking advantage of significant benefits when filing your trade tax return.
• For more financial news, see Front page of News24 Business.

In 2023, Finance Minister Enoch Godongwana introduced a tax rebate for individuals and businesses installing solar panels. The aim of this measure was to encourage residential and commercial solar installations and reduce the strain on the national electricity grid.

“One of the main benefits of the solar incentive is that it reduces taxable income. Individuals or companies that have invested in qualified solar energy projects can deduct a portion of their capital expenditure from their taxable income, resulting in a reduction in the overall tax liability,” says Michael Rushby, director of the accounting firm Galbraith Rushby.

However, there are two different incentives that differ significantly in terms of incentives and timeframe.

Application for private solar systems

Although there was initial enthusiasm about the possibility of receiving a certain amount of compensation for solar systems on one’s own home, this has now largely evaporated. And private individuals who have not yet installed and commissioned their solar system have as good as lost out.

The residential tax refund announced in February last year was only valid for one year and therefore ended in February this year.

According to Matthew Cruise, energy expert at Forest Energy, your home solar system must be active and fully functional by February 28, 2024 to be eligible to report it on your tax return for the previous tax year.

The individual tax benefit amounted to 25 percent of the value of the solar panels, which Cruise said typically only account for 20 to 25 percent of the cost of an entire solar system.

Rushby says if the cost of installing the home is R150 000 and 25% of that is for panels, then the panels would cost R37 500 and the rebate would be R9 375.

However, SARS has capped the total rebate for residential solar installations at R15,000, meaning that even large installations with many more panels cannot claim more than this amount.

Those interested in claiming this refund from SARS will need to declare the cost of PV modules when filing their ITR12 tax return for 2024. SARS will then calculate the rebate for you.

Along with the ITR12, homeowners must submit several supporting documents, including an Electrical Certificate of Compliance (COC), an invoice and proof of payment from the solar installer, proof of installation date and first commissioning date, and proof that the panels are for a primarily residential building.

If these documents are not already available, the solar company installing the system should be able to help prepare some of these documents, but Cruise points out that many small and even some larger operators have now disappeared.

The SARS website provides a comprehensive overview of the rules and requirements regarding reimbursement of costs for private solar systems.

Claims for companies

For companies looking to take advantage of the solar tax credit, there is slightly better news – in terms of timing and reimbursement.

The solar subsidy announced last year also included a business component that would be valid for two years instead of just one. Any company that installs and commissions solar panels on its premises before the end of February next year will therefore be eligible for the subsidy.

“Currently, companies can deduct 125% of their investments. So if they invest R100,000, they get R125,000 in tax deductions – with no maximum,” says Rushby.

According to Rushby, a company with profits of R2 million can achieve a 12B allowance of R250 000. By reducing the taxable income to R1.75 million, a company with this profit will be taxed about R100 000 less.

Cruise also points out that, unlike residential installations, the business rebate is based on the total value of the installation, which includes support structures, batteries and wiring.

“With a corporate tax rate of 27% and a rebate of 125%, the real tax deduction is 33.75%, or a third of the value of the entire system. The returns are quite decent,” says Cruise.

According to Cruise, a system costing a company around R1 million can result in tax savings of up to R330,000, coupled with the benefit of mitigating rising electricity prices.

As a result, Cruise said, while the number of residential installations is increasing as load shedding increases, companies are taking advantage of the incentive to reap the long-term benefits of a significant investment in solar energy.

“We see the tax credit as a massive incentive for companies to install solar systems. Many companies have decided to go solar and therefore want to complete their systems before February 29,” says Cruise.

The application process for solar power rebates for companies is similar to that for individuals. To be eligible for the full rebate, companies must own the solar system installed between March 2023 and February 2025. It must also be used to generate income.

Given the increased complexity of the corporate rebate, both Cruise and Rushby recommend engaging the professional services of a reputable solar company and an accountant to ensure maximum compliance and return on investment.