Section 12B of the Income Tax Act provides for a 50/30/20 income tax deduction in respect of plant and machinery owned by the taxpayer and which is brought into use for the first time by the taxpayer for the purpose of their trade.
Section 12B specifically provides for a deduction of plant and machinery introduced by a taxpayer to generate electricity i.e. photovoltaic (PV) solar energy and the deduction rules are as follows:
- PV solar systems generating less than 1 megawatt of electricity - write off 100% of the cost in full in the year it is brought into use.
- PV solar systems generating more than 1 megawatt of electricity - write off 50% of the cost in year 1, 30% in year 2 and 20% in year 3.
The accelerated depreciation allowance for solar PV systems applies whether they are installed for the business by contractors or developers, or paid for by the business in a credit sale agreement (as defined in Section 1 of the Value-Added Tax Act) - either upfront in a single payment or in multiple payments over an extended period. The cost of the solar PV system allowed for accelerated depreciation includes its full direct capital cost, including design and engineering, project planning, delivery, foundations and supporting structures, solar PV panels, AC inverters, DC combiner boxes, racking, cables and wiring, and installation. Finance costs are excluded.
Most PV solar systems installed to date generate less than 1 MW and such taxpayers will be able to claim 100% of their expenses in the year the solar system is installed.
This capital allowance was confirmed in a binding private ruling by SARS dated 11 October 2018 (BPR 311) in respect of an application by a private company in South Africa to clarify the deductibility of the capital expenditure incurred to install solar PV systems at a number of sites owned and leased by the applicant. The systems were being installed to reduce the company’s electricity costs.