It does not matter if you pay for the system upfront, or if you use credit. You will still be able to claim at the end of the year. Although, using the credit option could help maintain positive cash flow while waiting for the claim.
The claim depreciation percentage is tied directly to business tax, which is 28%. So, a 100% depreciation claim basically means you claim 28% of the total cost for the system. This results in you recouping almost a third of what you paid.
South Africa’s government, energy regulator and Eskom have often been criticised for obstructing the introduction of distributed, small-scale embedded generation (SSEG) which would help businesses to cut costs and ensure the stability of their power supply during load shedding.
But in fact, there are significant and far-sighted tax breaks which have been put in place by National Treasury to encourage and incentivise business owners to install their own generation in the form of grid-tied, rooftop or ground-mounted solar PV systems on buildings, parking lots, warehouses, factories, and farms.
Accelerated depreciation allowances
From 1 January 2016, a little-known amendment to Section 12B of the Income Tax Act (Act 58 of 1996) allows for depreciation in the year of commissioning of the full (100%) cost of a grid-tied solar PV system of less than 1 MW used for electricity generation by a business in the course of its operations.
The capital depreciation allowances for solar PV systems greater than 1 MW remained unchanged in the January 2016 amendment to the legislation, which continues to allow full depreciation over three years. This permits depreciation of 50% of the capital cost in the year of commissioning, 30% in the subsequent year, and 20% in the third year.
The accelerated depreciation allowance for solar PV systems applies whether they are installed for the business by contractors or developers, or paid for by the business in a credit sale agreement (as defined in Section 1 of the Value-Added Tax Act) – either upfront in a single payment or in multiple payments over an extended period.
The cost of the solar PV system allowed for accelerated depreciation includes its full direct capital cost, including design and engineering, project planning, delivery, foundations and supporting structures, solar PV panels, AC inverters, DC combiner boxes, racking, cables and wiring, and installation. Finance costs are excluded.
This allowance was confirmed in a binding private ruling by SARS dated 11 October 2018 (BPR 311) in respect of an application by a private company in South Africa to clarify the deductibility of the capital expenditure incurred to install solar PV systems at a number of sites owned and leased by the applicant. The systems were being installed to reduce the company’s electricity costs.
Courtesy of mybroadband.co.za