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EmPOWER your home and small business: Here’s what you can claim back from renewable energy tax

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EmPOWER your home and small business: Here’s what you can claim back from renewable energy tax

One moment you’re creating an invoice or presenting on a global conference call, and the next… darkness.

If you’re lucky, your trusty inverter, UPS, or remaining laptop battery saves the day, but many South Africans find themselves stuck between a rock and a dark place when loadshedding hits.

Do we need to adapt to a new life of generator fuel costs and frantic trips to the nearest internet café?

Not if Section 12B of the South African Income Tax Act has anything to say about it.

Renewable energy (and hope)

If ever there was an upside to loadshedding, it would be to encourage the use of clean and renewable energy.

After all, the sun won’t flip the switch (yet) and leave you high and dry. Fortunately, South Africa has a lot of sun to go around, and the government is eager for small business owners and entrepreneurs to become more independent.

A recent amendment to the Income Tax Act means South African taxpayers can deduct 100% of their grid-tied solar installation costs from their taxable income as a depreciation expense for the first year of use.

You’re basically getting solar energy for mahala in the first year with an accelerated depreciation allowance.

What you can claim back

Almost everything, including:

  • Project design and engineering
  • Project installation planning
  • Panels delivery
  • Installation
  • Installation safety officer costs

And voila, your business is greener, cleaner, and well-lit.

Sound too good to be true? Here’s the BUT.

Nothing in life is entirely caveat-free. For one, only a business generating taxable income qualifies for the tax credit, which means residential homeowners can only reap the rewards if they run a business from home.

So, if you’ve ever been in two minds about turning your side hustle into your main hustle, this incentive may be the tipping point you’ve been waiting for.

Other requirements to qualify include:

  • The taxpayer claiming the deduction must own the solar equipment or pay for the credit instalment.
  • It must be a first-time renewable energy purchase, which means you can’t claim if you already use renewable energy.
  • Only specific renewable energy resources qualify, like wind power, photovoltaic solar energy, concentrated solar energy, hydropower producing less than 30 megawatts, and biomass.
  • The 100% deduction is only relevant to photovoltaic solar energy producing less than one megawatt.

Benefits of energy independence

If you qualify for this renewable energy tax break, you’re well on your way to enjoying uninterrupted workdays.

Caveats aside, there are massive tax benefits that’ll help you reach the light at the end of the loadshedding tunnel:

  • As a matter of VAT: You can claim VAT if your business is a registered vendor.
  • Save money and make money: Running a business from home has never been sweeter or sunnier.
  • Appreciate depreciation: You can deduct the solar system’s value as a depreciation expense from your business’s profits.
  • Same-same, but deferred: The reduction can be carried over as a deferred tax asset to the next financial year.
  • Cash or credit?: Both cash purchases and credit sales agreements qualify.

Escaping the dark side

If you’re anything like most South Africans, you’re sick and tired of constant power cuts, buying overpriced diesel, and recovering unsaved documents. But with the government being onboard financially, there really aren’t many downsides to installing renewable energy.

What’s more, your sustainability practices are sure to impress eco-conscious customers.

In fact, according to a Mastercard survey, 76% of South African respondents think it’s important for businesses and brands to become more eco-friendly.

And recent Sage research found that SMEs in South Africa understand the urgency of the climate crisis, want to become more sustainable, and are eager to play their part in addressing climate impact.

Important tip: Remember to keep all receipts, purchase agreements, and invoices for the taxman.

Here’s to entering the bright side of life—pun intended.

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