Can I get a tax deduction for the installation of solar panels at my home?

• in respect of plant, machinery, implements and articles owned by the taxpayer;
• that are first brought into use by that taxpayer in the course of
  its trade; and
• in the generation of electricity from various renewable energy sources.

In cases of plant and machinery used in the generation of electricity from photovoltaic solar energy, in respect of energy less than 1 megawatt, the taxpayer may deduct 100% of the costs of such plant or machinery in the year brought into use.

What costs can be deducted?

In terms of Binding Private Ruling 311, it was determined that the taxpayer was entitled to deduct the following costs:

• the costs for acquiring the asset, which includes the costs for each component of each system; and
• direct costs for the installation and erection of the solar panels, which consisted of the installation planning costs, panel delivery costs and the cost of the installation safety officer.

What if I install solar panels at my home?

Section 12B of the Income Tax Act requires that the solar panels be used in the course of the taxpayer’s trade. If the solar panels are exclusively used for domestic and private purposes, no deduction can be claimed.

However, individuals are increasingly working from home, and it may be that the solar panels are wholly or partially utilised for a home office. In this case, the expenses may still qualify for a deduction, but subject to section 23(b) and 23(m) of the Income Tax Act, which sets out the rules for home office expenditure.

Employees working from home are subject to the limitations of both section 23(b) and 23(m) of the Income Tax Act and must be able to prove that they have a dedicated office space which is specifically equipped for that purpose and is regularly and exclusively used for such purposes. The taxpayer may then only deduct expenditure incurred for such exclusive office space, limited to rental, repairs and expenses related to the premises, which may include the installation of solar panels.

Therefore, employees must pass the general home office expenditure requirements in terms of sections 23(b) and 23(m) of the Income Tax Act, which may then allow them to deduct a proportional amount of the expenditure of the installation of the solar panels.

It is therefore important that taxpayers carefully consider whether they comply with the requirements of the Income Tax Act before deducting any expenditure and also apply their minds when apportionment of expenses must be made.

Get in touch with Jan Louis Koen at janlouis@asl.co.za for any further assistance.