Tax Deductible Investments
Section 12BA
What is Section 12BA
Loadshedding in South Africa has reached a critical point, and many businesses are earning fewer profits and even going under. The less money businesses make, the less money SARS can collect. Therefore, the government decided to incentivize alternative energy investment via Section 12BA of the Income Tax Act, which states that renewable energy projects can get 125% deduction on the year of electricity production.
Unique structures allow individuals and companies to take advantage of Tax Deductions, and using leverage can enhance the amount of the deduction even further.
Example of a basic R1mil 12BA Investment in the 45% Tax Bracket:
Benefits of Section 12BA Solar Tax-Deductible Investments:
- Receive a 125%-208% (with debt) tax deduction: Effective for the February 2024 and February 2025 tax years.
- Achieve 56% to 90% in tax savings: Equivalent to R562,500 to R900,000 on a R1 million investment.
- Enjoy steady passive income for 13-20 years: Unaffected by market fluctuations due to long-term power purchasing agreements.
- Access a historically moderate risk asset class: Similar to property investments.
- Diversify with multiple high-quality off-takers: Through Innovate’s Section 12BA options.
Normal Taxpayer A (45% marginal tax rate) | Taxpayer B with S12BA Investment (45% marginal tax rate) Investment R1,000,000 | Taxpayer C with S12BA Investment with 40% leverage (45% marginal tax rate) Investment R1,000,000 |
Tax Income: R3,000,000 | Tax Income before S12BA: R3,000,000Taxable income after S12BA: R1,750,000
| Tax Income before S12BA: R3,000,000Taxable income after S12BA: R917,500 |
Taxation on R3m TotalTaxes Payable: R1,159,604
| Taxation on R1,750,000Total Taxes Payable: R599,783
TAX SAVINGS: R559,820 (56%)NET INVESTMENT: R440,180 | Taxation on R917,500Total Taxes Payable: R258,459
TAX SAVINGS: R901,145 (90%)NET INVESTMENT: R98,855 |
