Solar power is often touted as a key factor in reducing the environmental damage we are inflicting on our environment.

South Africans will also be looking for ways to reduce the very serious impact of loadshedding, which regrettably seems likely to continue plaguing both our business and personal lives for some time to come.

The good news is the tax relief available to businesses on the costs of solar energy plants. We summarise a recent SARS binding ruling which sets out what deductions will be allowable, and when.

“If only there was some kind of an infinite power source that
was free to use all day every day…” (Anon)

In a recent binding ruling, SARS confirmed it will allow the cost of solar power units. The capital costs that may be deducted are:

  • Photovoltaic solar panels;
  • AC inverters;
  • DC combiner boxes;
  • Racking; and
  • Cables and wiring.

In addition related allowable costs of installation are:

  • Installation planning expenses;
  • Panels delivery costs;
  • Installation expenses; and
  • Installation safety officer costs.

If the solar unit per site generates less than 1 megawatt of power, the full cost is allowable in the year the plant was commissioned according to the ruling. If the equipment generates 1 megawatt or more energy, then 50% can be deducted in year one, 30% in year 2 and 20% in year 3. Note that if the company is a SBC (Small Business Corporation), the capital allowances under the SBC tax allowance regime (i.e. 50/30/20) must be claimed.

Remember the normal rules apply in terms of qualifying for a deduction – the plant must be owned by the taxpayer, it must be used for the purposes of trade by the taxpayer and the plant must be brought into first time use by the taxpayer.