The Government uses tax incentives to encourage taxpayers to behave in specific ways. One of the Government’s top priorities at the moment is to encourage green electricity production.
One of the provisions of the February 2023 budget was to increase the accelerated depreciation allowed for investment into green electricity production, specifically solar power.
In terms of Section 12B of the income tax act, the installers of solar power could already claim 100% depreciation in the year in which they started producing electricity.
This has now been increased to 125%.
It is now possible to make an investment that leads to a tax deduction where the amount of tax saved, is more than the investment contribution.
Let’s look at an example for only a 100% deduction.
Mr A has a taxable income of R10 000 000 in this (2024) tax year.
In normal circumstances he would pay close to 45% for tax, that is about R4 500 000.
He decides to invest into a 12B project, rather than pay tax.
Mr A now invests R3 700 000 in a green energy project which bills R8 000 000 worth of green energy installations, for which they use Mr A’s funds and some borrowed funds.
The project gets a R10 000 000 depreciation allowance which Mr A can offset against his other income.
Mr A has no net taxable income, pays no tax but has the benefit of sharing in the profits of a green energy project for the next 15 years. Because the partnership is a limited liability partnership, Mr A is not liable for any addition contribution.
So, you can choose to pay tax – or become an investor into a 12B project by contributing less than the tax you would have paid anyway!
There is only upside for the taxpayer in this transaction!