Solar Panel Tax Incentive for Individuals – Explained:

 

This note sets out the basic characteristics and requirements for the solar panel incentive announced by the Minister of Finance on 22 February 2023. This is meant to help individuals in their immediate decision making, rather than postponing any solar installation until the legislative process can be finalised.

 

  • ·        The objective of the incentive is to encourage households to invest in clean electricity generation capacity which can supplement electricity supply. The incentive will only be available for 1 year to encourage investment as soon as possible.
  • ·        Individuals who pay personal income tax can claim the rebate against their tax liability. This rebate is not intended for solar installations at business premises.
  • ·        Individuals will be able to claim a rebate to the value of 25% of the cost of new and unused solar photovoltaic (PV) panels, up to a maximum of R15 000 per individual.

The requirements are as follows:

  • ·       Only new and unused solar PV panels qualify - the panels can be installed as part of a new system, or as an extension of an existing system. This is to ensure that the capacity is an addition to what the country already has in place.
  • ·        Only solar PV panels with a minimum capacity of 275W per panel (design output) qualify for the rebate. Portable panels will also not qualify. Other components of a system like batteries, inverters, fittings or diesel generators – and installation costs do not qualify.
  • ·        Solar PV panels must be installed at a residence that is mainly used for domestic purposes by an individual. The installation will have to be proved with a Certificate of Compliance in terms of the Electrical Installation Regulations, 2009. This will also ensure safety of the installation and compliance to electric regulations.
  • ·        The solar PV panels must form part of a system that is connected to the mains distribution of the private residence.
  • ·        The rebate applies to qualifying solar PV panels that are brought into use for the first time in the period from 1 March 2023 to 29 February 2024.

 

Individuals will be able to claim the rebate if they have:

 

  • ·        A VAT invoice that indicates the cost of the solar PV panels separately from other items, along with proof of payment.
  • ·        Certificate of Compliance evidencing that the solar PV panels were brought into use for the first time in the period from 1 March 2023 to 29 February 2024.
  • ·        PAYE taxpayers will be able to claim the rebate on assessment during 2023/24 filing season. Provisional taxpayers will be able to claim the rebate against provisional and final payments.

 

Why only solar panels, and not diesel generators, inverters, batteries, and installation costs?

 

Diesel generators are often used as emergency back-up but are not a sustainable solution to generate additional power. They increase demand for fuel and have negative environmental impacts. Including generators would detract from the climate objectives government is committed to, where fiscal instruments like the carbon tax play an important role.

 

While an inverter and batteries are required to use solar panels, inverters and batteries can be operated without solar panels – in which case they offer no additional capacity to the system. The focus on solar PV panels is to maximise the use of limited government funds to get as much additional generation capacity as possible – and recognises that government will have to focus on a partial rebate of the components that are most directly linked to generation. This is why installation costs are not included either.

 

What about Lessors and Lessees?

 

There is no ownership limitation for the incentive, so installations by landlords or renters would be eligible, but only the party that pays for the solar panels can claim the rebate.

 

What about sectional titles / body corporates?

 

If occupants are enabled to install their own panels, then the tax incentive applies as for all other individuals. A body corporate will not be able to claim this incentive. It is not clear whether many body corporates will be purchasing solar installations instead of using leasing or other options to avoid up-front costs for members. Government will be consulting on this aspect. If there is widespread interest in body corporates purchasing and installing solar panels, then payment (e.g special levies) for solar installations levied from the occupants would have to indicate the cost of the solar panels separately – as would be the case for any other claimant. The applicable Certificate of Compliance data would also have to be shared with SARS. Because there would be some adjustments to ensure that the right people could claim the right amounts, there will be consultation to determine the required approach and documentation.

 

What happens when I sell my house with the installation done and incentive claimed and received? Do I need to pay money back to SARS?

               

No, there will be no recoupment if you sell your house after having benefitted from this incentive as the solar panels will likely remain fixed to the house and used by the following owner – still enabling an expansion in generation. There will, however, be a claw-back of the rebate if you sell the panels themselves within one year after they were first brought into use to counter potential abuse.

 

In Conclusion:

 

This incentive will be included in the annual tax amendments. A draft version of the legislation will be published for public comment no later than the publication date of the 2023 Draft Taxation Laws Amendment Bill. The Minister tables tax bills during the Medium Term Budget Policy Statement (MTBPS) in October each year. Parliament considers the amendments after which the President can assent to the amendments – usually by January of the year after the announcement.

 

The aim of this note and the draft legislation to follow is to provide as much upfront clarity as possible so that individuals do not feel they need to wait for the tax bills later in the year before deciding to invest and benefit from the incentive. The guidance provided is, nevertheless, subject to the outcome of the consultative process on the proposal and Parliament’s ultimate decisions on the legislation giving effect to the proposal.

 

 

As per document released by National Treasury – Republic of South Africa