Rooftop solar: Taxpayers want clarity on the cost to generate their own power

Finance Minister Enoch Godongwana delivers his 2023 budget at a time the country is in the throes of Stage 6 load shedding. There are high expectations that he will give clarity on how people will be compensated for having to generate their own energy because Eskom is incapable of keeping the lights on.

Read: Stage 6 continuous load shedding to kick off the week

The Income Tax Act already allows for a 100% deduction on any asset that is used to generate photovoltaic solar power. Although the section that states as much has been part of the law for around a decade, it has not been used much.

There is still uncertainty about what can be claimed and what cannot.

Different solar systems

Different solar systems have different outcomes. That is why blanket statements like “batteries can never be included, and inverters must always be included in the calculation” are difficult to make, says Carmen Westermeyer, partner at Maitland & Associates and presenter of The Tax Faculty’s Tax Café webinar.

During this week’s webinar she referred to a private binding ruling that was issued in 2018 with respect to what deductions will be allowed.

In terms of the ruling, a private company installing photovoltaic solar energy plants is entitled to claim deductions under Section 12B of the act for the photovoltaic solar panels, inverter, DC combiner box, racking, and cables and wiring at each of its photovoltaic solar energy plants.

Westermeyer says given the fact that many people continue to work from home, it makes sense to consider claiming a deduction on the cost of installing solar energy as part of the home office expenses.

But this is not necessarily going to be easy.

Section 12B allows for a 100% write-off in the first year of expenditure, provided the asset is used for trading purposes, was brought into use for the first time, and generates power.

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Westermeyer warns that it can be “messier” to attempt to claim a deduction for such a system under home office expenses.

The chance that the system is exclusively used for the home office is “slim to none”. However, it could be possible to make an apportionment in line with the size of the office space.

Deductible costs

Westermeyer uses an example where a dental practitioner uses a part of their home for their business. They put up a solar system to ensure that the ovens used for making moulds and dental plates can continue running during load shedding. They “would be able to make a pretty decent argument that the majority of the cost should be deductible”.

There is no restriction on the type of trade for which the allowance can be claimed.

If a taxpayer installs a solar system for their investment property to ensure that tenants are more likely to rent from them, they will be able to make use of the 100% write-off.

An inverter with batteries will not qualify for the Section 12B allowance since it does not generate power. However, taxpayers may still be able to make use of the wear-and-tear allowance in the act.

The absurdity

Westermeyer notes that the South African Revenue Service (Sars) previously issued an interpretation note where it disallowed expenses relating to solar panels and the interest cost on a home loan.

This interpretation was challenged extensively by recognised controlling bodies such as the South African Institute of Chartered Accountants and the South African Institute of Taxation. Sars was essentially told that its interpretation was wrong.

Read: SA power cuts: trend to get off the grid gathering pace

“It creates an absurdity,” says Westermeyer.

How is it that the taxpayer is being penalised for owning their own home?

“In terms of the Sars interpretation a person who rents an office can claim the cost of the rental, which includes sewerage, refuse removal and water. Someone who uses a room in their home as an office cannot claim the cost of owning it. It does not make any sense.”

She says Sars has “kind of” conceded that there was a problem with its interpretation, but has not issued an amended interpretation note.

According to Westermeyer, the interpretation note does not carry any legal weight. It is not binding in terms of legal precedent like a court case.

Therefore, if Sars disallows taxpayer’s claims they should be prepared to stand their ground and even approach the Tax Board or Tax Court.

“Don’t be quite so frightened of the Tax Board,” she says.

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