The proposed new law regarding the tax credit available to individuals who install solar panels has been announced.

The system will be introduced in the form of a tax credit, as opposed to a tax deduction. This is good news as it affords individuals with a uniformed opportunity in claiming the same tax credit. Under a deduction form, a sliding scale is applied, which is dependent on each individual’s income and tax bracket. 

Four key ingredients

Individuals who claim the solar energy tax credit must ensure that the following requirements are met:

1. The solar panels must be new and unused; and acquired by the person, and for the first time brought into use by such person, from 1 March 2023 to 29 February 2024;
2. They must have a generation capacity of at least 275 watts; 
3. The solar panels must be a component in a system which connects to a distribution board at a person’s residence, which residence is mainly used for domestic purposes; and
4. An electrical compliance certificate must be issued to such person, in respect of the installation of the solar panels, under the Electrical Installation Regulations, 2009.

One year window only

Although the solar energy tax credit system was announced before the year of assessment commenced, it should be noted that the law has not yet been enacted and only the draft law has been published. It will, however, only be available for one year and take effect from 1 March 2023 until 29 February 2024.

Solar installers who are compelled to submit third party information to SARS will have to reapproach clients for whom solar panels were installed from 1 March 2023, to ensure they are in possession of the information required to be submitted to SARS.

What amount can be claimed?

The solar energy tax credit is calculated as follows - 

• 25 % of the “actual cost” of the solar panels; and
• Limited to a maximum amount of R15 000.00.

Who may claim the credit?

The tax law proposal is that the credit may only be claimed by the individual who “actually incurred” the cost of the solar panels. Therefore, the owner or occupant of the property will be entitled to claim the proposed tax credit.

Anti-avoidance provision

An anti-avoidance mechanism is proposed, which provides that, in the event that a solar panel, in respect of which the solar energy tax credit was previously claimed, is sold on or before 1 March 2025, the credit so previously applied will be disallowed. It is proposed that the person who claimed the tax credit will then be subject to normal tax, as if that credit was not applied in the applicable year of assessment.

This provision will not apply where the individual sells, or vacates from, the residence to which the solar panels were installed.

Deadline

Comments on the proposed solar tax energy credit scheme may be submitted to SARS until 15 May 2023. If you would like for us to consider your comments, please feel free to join and post any such comments on our Facebook and/or LinkedIn groups, with the following links:

https://www.facebook.com/groups/766164188512975

https://lnkd.in/dX6pS8xN

Alternatively, please feel free to email your comments directly to solarsubmissions@taxconsulting.co.za.

Written by Micaela Paschini, Tax Attorney at Tax Consulting SA