What Is Section 12B? Solar Tax Deduction Explained

Section 12B allows businesses to deduct 125% of the cost of qualifying renewable energy assets in the year of first use. For a R1 million solar installation, you can deduct R1.25 million from taxable income.\n\nAt the 27% corporate tax rate, this translates to R337,500 in actual tax savings on a R1 million investment. The extra 25% above the actual cost is effectively a government subsidy delivered through the tax system.\n\nThe deduction applies in the tax year when the asset is first brought into use, not when it is purchased or installed.

Any South African taxpayer carrying on a trade can claim Section 12B. This includes companies, close corporations, sole proprietors, trusts, and partnerships. The taxpayer must own the solar equipment and use it for trade purposes.\n\nThe solar system must be new and unused. Second-hand panels do not qualify. There is no minimum or maximum system size requirement, though the system must generate electricity from solar energy.\n\nRental property owners who lease commercial space may also qualify if they own the solar installation and it forms part of their rental trade.

The deduction covers the cost of solar panels, inverters, mounting structures, cabling, and batteries if installed as part of the solar system. Installation labour and commissioning costs are included.\n\nSoft costs such as engineering design, electrical compliance certificates, and grid connection fees are generally included as part of the asset cost. Standalone feasibility studies conducted before committing may not qualify.\n\nMaintenance contracts and insurance are operational expenses claimed separately and do not form part of the Section 12B capital deduction.

Section 12B has been extended and amended several times. The current 125% incentive applies to assets brought into use from 1 March 2023. Businesses should verify the current status with their tax advisors.\n\nThe deduction cannot create or increase an assessed loss for the specific purpose of carrying forward indefinitely. Normal assessed loss rules apply. If the deduction exceeds current taxable income, the excess carries forward.\n\nProper documentation including invoices, proof of payment, and commissioning certificates is essential to support the claim during SARS audits.