The enhanced tax incentive recently introduced by the government, known as Section 12BA, aims to promote private investment in electricity generation from renewable energy sources to help alleviate the energy crisis in the country. This incentive is a temporary enhancement of the existing renewable energy tax incentive found in section 12B of the Income Tax Act.

Below are the key points:

Availability and Duration

The incentive is available from 1  March 2023 to 28 February 2025 to encourage investment in renewable energy during this period.

Eligible Taxpayers

The incentive is available to registered companies, sole proprietors and other taxpayers conducting business activities.

Important: this incentive is not to be confused with the solar rebate incentive per section 6C which is for individuals installing solar panels in their private homes for domestic purposes.

Deduction Amount

Businesses can claim an upfront deduction of 125% of the cost incurred to acquire qualifying assets (including supporting structures) used in electricity generation from renewable energy sources. 

Requirements for Eligibility

   - The business must own the asset.
   - The asset must be used in the production of income.
   - Only new and unused assets qualify.
   - The assets must be brought into use for the first time between 1 March 2023 and 1 March 2025.
   - Assets must be used to generate electricity from renewable energy sources e.g  solar energy, wind power, etc 

Qualifying Assets

Assets used to generate electricity qualify for the incentive, including their supporting structures. These structures must be specifically designed and integrated with the assets, and their lifespan should match the assets they support.

There has been uncertainty about whether storage (e.g. batteries) and conversion (e.g. inverters) assets qualify. This confusion arises because these items are specifically excluded from solar rebate incentives for individuals that install rooftop solar for domestic use in their home.

If storage and conversion assets are part of a system that produces electricity, they likely qualify for the s12BA enhanced incentive. However, if they are used just to store power from the grid for loadshedding, they likely do not qualify because this does not align with the policy's goal of increasing generation capacity. Therefore, its important that SARS assesses each case individually.

Financial Support

Businesses that don't have sufficient cashflow to invest in renewable energy assets can still make use of the tax incentive by borrowing funds via the Energy Bounce-Back (EBB) Loan Guarantee Scheme. The EBB Scheme aims to incentivise the generation of an additional 1 000MW of power through rooftop photovoltaic solar over the 12 months period ending (on 30 August 2024), whilst helping small business and households mitigate the effects of loadshedding.

Ownership and Leasing

Businesses which lease qualifying assets can benefit from the incentive, provided they meet the ownership criteria. In the case of finance leases, ownership passes only at the end of the lease period and therefore lessors can claim the tax deduction because they would own the generation assets for the duration of this incentive. 

Claiming the Deduction

Businesses can claim the deduction when completing their tax returns (ITR12 for individuals/sole props or ITR14 for companies). Trusts investing in renewable energy can claim the deduction on the ITR12T return.

Limitations

A business cannot claim deductions under multiple sections (e.g. section 12B, section 12E and section 12BA) for the same asset during the same tax year. Additionally, if an asset is funded partially by personal funds and partially by a government grant, the deduction applies only to the portion funded by personal funds.

Overall, the incentive aims to incentivise investment in renewable energy generation, provide financial support and contribute to addressing the country's energy challenges.