Photovoltaic Solar Energy Plants

In October 2018, SARS issued a binding private ruling determining the deductibility of expenditure to be incurred to install photovoltaic solar energy plants at sites owned and leased by the applicant (in this case a resident private company is the applicant).

The ruling may be downloaded here:

Reference documents

  • INCOME TAX ACT 58 OF 1962
  • BINDING PRIVATE RULING #311 (SARS)

This is a ruling on the interpretation and application of the Income Tax Act’s:

  • section 12B(1)(h)(ii)(bb);
  • section 12B(2)(b); and
  • section 12B(3)

Summary of the ruling as per the biding private ruling and the application proposed by the user:

The applicant is entitled to claim deductions in respect of:

  • Each of the photovoltaic solar energy plants to be installed at each of the sites, consisting of the photovoltaic solar panels, inverter, DC combiner box, racking, and cables and wiring, under section 12B(1)(h)(ii)(bb).
  • The direct costs of the installation and erection of each of the plants, consisting of the installation planning costs, panel delivery costs and the cost of the installation safety officer to be appointed, under section 12B(3).
  • The deduction of the expenditure deductible under section 12B(1)(h)(ii)(bb) must be calculated under section 12B(2)(b).

The applicant brought forth a proposal and as such forms the basis of review by SARS against which this ruling was determined.

Summary

The applicant proposed to install solar power systems at each of the sites it rents, to reduce electricity costs. The proposed photovoltaic solar energy systems at each site will comprise of the following components:

  • photovoltaic solar panels
  • AC inverter
  • DC combiner boxes
  • racking and cables and wiring

Distribution boxes do not form part of the photovoltaic solar energy systems and no expenditure is claimed in respect of them under the section.

The system supplements, and does not replace, the electricity provided by the main grid.

Each system installed per site will generate less than 1 megawatt of electricity.

The related installation expenditure includes:

  • installation planning costs
  • panels delivery costs
  • installation costs and
  • installation safety officer costs

Conditional deductions permitted:

  • < 1MW generation – the full cost may be deducted in the first year.
  • 1MW generation – 50% of the cost may be deducted in the first year followed by 30% in year two and 20% in year three.

This article is provided for information only and does not constitute the provision of professional advice of any kind.

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