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In a bid to reduce the pressure on Eskom, Finance Minister Enoch Godongwana announced a new tax incentive last month, to encourage South African homeowners to invest in clean electricity generation.
As part of the new scheme, homeowners who install rooftop solar photovoltaic (PV) panels will get a tax rebate of up to 25%. Sounds appealing?
Here is everything you need to know:
How does the tax rebate work?
Information related to this tax break is currently found in guidance notes by the National Treasury and will only receive presidential assent early next year. It proposes that individuals who install new (unused) solar PV panels between 1 March 2023 and 29 February 2024 can claim a tax rebate to the value of 25% of the solar panels, capped at a maximum of R15,000 per individual.
The rebate cap means that to get the maximum return, a homeowner would have to purchase R60,000 worth of panels, explains Dr Andrew Dickson, an engineering executive at CBI Electric.
‘For example, if a person purchased R50,000 worth of panels between March 2023 and February 2024, and had them installed and operational during the same tax year, then, under the rebate, they would be able to claim back R12,500 off their tax liability. If their taxable amount is R500,000 for the tax year, without any other deductions, they would have a tax liability of R117,507. With the solar rebate, they would only be liable to pay R105,007,’ he explains.
What else do you need to know?
As Andrea Tucker, Director of MortgageMe, explains, there are several other requirements that must be met before the rebate can be applied.
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‘The government wants to encourage investment as soon as possible, so this incentive will only be available for one year, and to qualify, you must have purchased the panels between now and 29 February 2024,’ she says.
Also important is that the tax incentive is only available to individuals who pay personal income tax and will be claimed as a rebate against their individual tax liability. ‘This is important, as homeowners will not be paid back immediately but rather on assessment during the 2023/24 filing season next year,’ adds Tucker.
Where a property is leased out, either the landlord or the tenant can apply for the rebate, provided they have permission to install the solar panels, but only the paying party will be able to claim the tax break.
In terms of installation, only new, unused solar panels with a minimum capacity of 275W per panel will qualify for the rebate and they must be installed as part of a new system, or as an extension of an existing system, at a domestic residence (not at business premises).
‘Homeowners will need to provide an electrical certificate of compliance after installation and must ensure that their system is connected to the main distribution board,’ says Tucker.
Is the tax rebate worth it?
On paper, the answer is ‘no’, but, as Dr Dickson explains, time will tell. ‘There is currently lots of uncertainty as to the true benefit to homeowners, and as a result, the uptake may not be as significant as expected by the government,’ he says.
He adds that many South Africans cannot afford to place money on the table for a system thanks to the financial impacts of Covid and now the increasing interest rate hikes. ‘The availability of solar panels to meet the potential demand would mean that many who would require the tax incentive may miss the window. Added to this, the rebate will only be returned in late 2024, which is a long time for cash-strapped households to wait,’ he adds.
It is a sentiment echoed by Henry Fenn, audit supervisor at Hobbs Sinclair Incorporated, who notes that the exclusions far outweigh everything else. ‘Solar panels without inverters are not worth anything. Components of the solar system – like batteries, inverters, fittings, portable panels, and diesel generators – do not qualify for the rebate, nor do the installation costs. Without a full system it will be less of an incentive and may therefore reduce the appeal,’ he concludes.
