12B Tax Allowance

Overview of section 12B

Section 12B of the Income Tax Act provides for an accelerated capital allowance in respect of certain assets owned by a taxpayer, and used by that taxpayer in the generation of electricity from wind power, solar energy, hydropower to produce electricity of not more than 30 megawatts and biomass comprising organic wastes, landfill gas or plant material.

The accelerated write-off period of 50% in the first year, 30% in the second year and 20% in the third year, as provided for in section 12B, applies to the costs of the said machinery, plant, equipment, utensils or articles or any improvement thereto.  The accelerated allowance can be claimed from the first year in which the assets is brought into use by the taxpayer for the purpose of its trade.

The allowance that may be claimed in terms of section 12B of the Act is not apportioned in the first year of the write-off, ie the allowance is fully claimable in the relevant year of assessment, regardless of at what point in that year the asset was brought into use.  No apportionment is done according to the amount of days in that year when the asset was used.

It has now been proposed in the 2015 draft Taxation Laws Amendment Bill, released on 22 July 2015, that the definition of solar energy is amended to distinguish between photovoltaic solar energy of more than 1 megawatt, photovoltaic solar energy of less than 1 megawatt and concentrated solar energy. The provision provides for an accelerated capital allowance of 100% in the first year, in respect of photovoltaic solar energy of less than 1 megawatt.

The reason for the change is to accelerate and incentivise the development of smaller photovoltaic solar energy projects, as it has a low impact on water and environmental consumption. This is also intended to help address the energy shortages facing South Africa in a more environmentally friendly way.

The proposed amendment will come into effect on 1 January 2016 and will apply in respect of years commencing on or after that date.

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