By Linden Bowes, Regional Director, ECA(SA) KZN
For many South African individual taxpayers, tax relief from the South African Revenue Service (SARS) in the form of a tax rebate and/or credit, is a welcomed incentive. In response to South Africa’s need to attract investment towards alternative energy, which then alleviates pressure on government to tackle the energy crisis and further encourages households to invest in clean electricity generation, SARS introduced a tax credit under section 6C of the Income Tax Act 58 of 1962 for a limited period, from 1 March 2023 to 29 February 2024.
Essentially, individuals who install or had installed new (unused) rooftop solar panels, will be able to claim a rebate of 25% of the costs of the panel(s), up to a maximum of R15 000 per individual taxpayer. For now, the rebate is only applicable where panels are used, having minimum capacity of 275W per panel, which must be connected to the mains distributed of the residence, which therefore excludes off-grid installations.
Who and what qualifies?
This tax credit applies to any natural person who is liable for personal income tax. As with any other tax incentive, the individual taxpayer should be in good standing with SARS and must be able to provide accurate information and proof, in respect of the rooftop solar installation when submitting his/her annual personal income tax return.
It is important to note that a natural person may be eligible for the tax credit on the cost that has been actually incurred in respect of the acquisition of qualifying solar PV panels. The cost relating to other components of a complete solar energy system such as inverters and batteries do not qualify for the tax credit. The solar panels must be purchased and installed in a private residence used mainly for domestic purposes, which then may exclude a business residence that might ordinarily be deemed to be a private residence, such as a guesthouse.
The essential role of qualified electrical contractors
Qualified electrical contractors are essential and instrumental in serving individuals who install rooftop solar panel(s) for the purpose of the Solar Energy Tax Credit, in that the solar panel(s) must be installed and mounted on or affixed to a residence mainly used for domestic purposes, by the person incurring the cost. In addition, the installation must be connected to the distribution board of the residence and an electrical Certificate of Compliance (CoC) in respect of the installation must be obtained.
The individual taxpayer must use the updated Provisional Tax Return form issued by SARS (IRP6 form), that now provides for a “Solar energy tax credit” field which is to be completed to enable taxpayers to take the tax credit into account, in determining provisional tax payable for the second provisional period of the 2024 year of assessment.
Extending the credit
So where to from here for the taxpayer, entering the new tax period from commencing 1 March 2024 which will end 28 February 2025? Well, the 2024 National Budget Speech which was presented by National Finance Minister Enoch Godongwana on 21 February 2024, did not include the Solar Energy Tax Credit. It is likely therefore, that the Solar Energy Tax Credit incentive, will not be extended post 29 February 2024. We can remain hopeful; however, noting the positive impact that the Solar Energy Tax Credit incentive has had during the current tax period for the individual taxpayer.
South Africans are still encouraged to follow the essential elements provided for, in S6C of the Income Tax Act, to successfully benefit from the Solar Energy Tax Credit. By utilising an accredited electrical contractor, it will no doubt contribute towards a successful tax rebate, which further contributes towards the overall intention of government’s ambition to invest in clean electricity generation.
As the ECA, we have a legitimate expectation that the Solar Tax Credit be extended for a period of at least 24 months. Should it not be extended, the ECA may call upon the Minister of Finance to consider substantive reasons for the Solar Tax Credit to continue.
