Understanding the rooftop solar tax incentive
One of the frequently asked questions relating to the one-year tax incentive on the installation of rooftop solar systems is why the incentive only applies to the cost of the solar panels and not the inverter, batteries, or installation costs.
National Treasury says in its note setting out the basic characteristics and requirements for the incentive that while an inverter and batteries are required to use solar panels, inverters and batteries can be operated without solar panels.
“The focus on solar PV [photovoltaic] 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,” Treasury says in its note.
However, most of the cost is tied up in the inverter and batteries.
Jackie Arendse, professor of taxation at Academy One, looked at a recent invoice of R150 000, for a solar system on a private residence.
The cost of the solar panels amounted to 20% of the total cost.
“This is almost like giving a wear-and-tear allowance on the tyres of a car and not the car itself. It is a little strange,” she said during The Tax Faculty’s post-budget economic and tax analysis.
How it works
The incentive will apply in a similar manner to the medical credit system, but the solar tax incentive is only for the period 1 March 2023 to 29 February 2024 (Leap Day).
Individuals will be entitled to claim a 25% credit on the cost of their solar panel expenses up to a maximum of R15 000 per person.
The credit can only be claimed once the taxable income for the tax year has been calculated.
Treasury says the aim of its note and the draft legislation that will follow (probably long after the initiative starts) is to provide as much upfront clarity as possible. Individuals will then not have to wait for the tax bills later in the year before deciding to invest and benefit from the incentive. However, there seems to be a disclaimer.
“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.”
Arendse says there are still some uncertainties. For example, if a couple shares the same roof, will both be eligible for the R15 000?
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Another uncertainty is whether individuals would qualify if they bought the panels last year, but only obtained a certificate of compliance (COC) in July this year.
And a question that was raised during the post-budget analysis is whether panels that are not on a rooftop, but on the ground, will qualify. Treasury says: “Portable panels will also not qualify.”
“So, before people leap in and commit to all sorts of expenses, they need to make sure they have clarity,” notes Arendse.
“Sometimes government comes up with ideas but when it is put into legislation there are suddenly all sorts of Ts and Cs [terms and conditions]. Then things become much more limited than we may have thought,” notes Arendse.
Another uncertainty is whether individuals will qualify if the panels were bought and installed in 2018 but the owner moved to a new home and obtains a COC in March 2023.
Treasury’s requirements state that only “new and unused” solar PV panels will qualify, to ensure that the capacity is in addition to what the country already has in place.
The panels can be installed as part of a new system, or as an extension of an existing system. “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.”
Only solar PV panels with a minimum capacity of 275W per panel (design output) qualify for the rebate.
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Arendse says people who are renting a property and install a solar system will be able to claim the rebate. Similarly, if someone pays for the solar panels at their parents’ or children’s home the purchaser should be able to qualify for the incentive.
However, a body corporate will not be able to claim this incentive. Treasury says in its note 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 COC data would also have to be shared with the South African Revenue Service.
Because there will be adjustments to ensure that the right people can claim the right amounts, there will be consultation to determine the required approach and documentation, Treasury says.
Another requirement to claim the rebate is a value-added tax invoice that indicates the cost of the solar PV panels separately from other items, along with proof of payment.