At present, through the Section 12B taxx Allowance, the tax authorities allow any registered business installing and owning a renewable energy installation – Solar PV, Wind, Hydro or Biomass – the ability to write off the entire cost against taxable income over three years in the ratio of 50%, 30% and 20%.
The proposal is now, via Section 12E in the 2016 tax year, to allow a 100% write off in the first year for installations of 1 MW and less of renewable energy.
This allowance is a generous one to help stimulate investment in renewable energy by the private sector and does not require the business to fill in an application form or take any action before acquisition or commissioning.
At present the first full claim of 50% may be made in the year of commissioning and the allowed claim can include all systems brought into use after 1 January 2013. Businesses may include the integrated structures and equipment required for the installation but not finance charges.
Under certain circumstances this means that businesses installing Solar PV benefit as follows:
- They lock in their price per kw for the life of the system – at present that is less than R1.00 per unit
- They recover their investment via the depreciation allowance within three years
- If they have private metered tenants on the same supply then they could drop the payback time (including depreciation) to 14 months
If business takes advantage of the 100% depreciation allowance in the next tax year it will make absolute sense from a cash flow and future savings perspective to start making enquiries about the installation of a solar grid-tie system now.
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