SARS released BPR 172 on 25 June 2014. The ruling deals with the question of whether various items used in the production of solar energy qualify for the section 12B allowance.
By way of background, section 12B(1)(h) read with section 12B(2) of the Income Tax Act allows a deduction on a 50:30:20 basis over three years of any ‘machinery, plant, implement, utensil or article owned by the taxpayer … and which was or is brought into use for the first time by that taxpayer for the purpose of his or her trade to be 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 applicant is a private company incorporated in and a resident of South Africa. It proposes to construct grid-tied solar photovoltaic systems (PV Systems) to be used at many of its business locations within South Africa to generate electricity from solar energy. The electricity to be produced by the PV systems will feed directly into the power supply systems of the respective facilities without being stored in batteries. In some instances the PV systems will be installed on leased land. The process of generating electricity from solar energy will be as follows:
- Sunlight will be absorbed by the silicone-based semi-conductors of a PV panel, generating direct current (DC) electrical energy, which will be conveyed by DC feeder lines to a DC Combiner.
- The DC Combiner electrically combines the multiple strings of solar panels. On the output side of the DC Combiner combined sets of DC feeder lines run to an alternating current inverter (AC Inverter).
- The AC Inverter will convert the DC electrical energy to AC electricity on which electrically powered equipment will operate.
- The AC inverted current will travel from the AC Inverter into the facility’s main service panel, from which a further connection will be established for use by equipment.
The PV system will be affixed or mounted at the various locations, as follows:
- Each PV system will be affixed to a specially designed and constructed concrete foundation having regard to the requirements of each location.
- In accordance with industry standards, a PV system has a useful life of 25 years, which includes the concrete foundation and supporting steel structure.
- The PV panels are bolted to concrete foundations and can be removed by using appropriate equipment. After removal, the PV panels could either be scrapped or transported to another location for re-use.
The main issue that one imagines prompted the application for the ruling was the question whether all of the above equipment could be regarded as being used ‘in the generation of electricity’.
Another may have been the question whether, in view of the fact that the PV system is affixed to a concrete foundation which attaches to the land on which it is situated with the PV panels bolted to concrete foundations, such items are regarded as acceding to the land and therefore part of the land.
However, in view of the fact that building allowances are claimable in terms of, for example section 13quin regardless of the fact that the buildings accede to the land, it is submitted that this should in fact be a non-issue.
The ruling given by SARS is that the PV panels consisting of all constituent parts, including the concrete foundations and supporting steel structures, the DC Combiner and feeder lines and the AC Inverters including all equipment situated therein all constitute ‘plant’ used in the ‘generation of electricity’ and therefore qualify for the 50:30:20 write off under section 12B.
The binding ruling is valid for a period of 5 years from 10 June 2014. As the ruling is a Binding Private Ruling as opposed to a Binding General Ruling it should be noted that it is only binding between SARS and the applicant concerned.