New Regulations Published for Section 12L Energy Efficiency Tax Incentive

The Minister of Finance, Pravin Gordhan published new regulations in terms of Section 12L of the Income Tax Act, No. 58 of 1962  (“section 12L”) in Government Gazette No. R. 971 on 9 December 2013: Energy Efficiency Tax Incentive.

The main change to these regulations is that exemptions to the incentive were added. In terms of the regulations a person would not receive the section 12L allowance in respect of energy generated from renewable sources or co-generation other than energy generated from waste heat recovery. The regulations define renewable sources as biomass, geothermal, hydro, ocean currents, solar, tidal waves and wind. Waste heat recovery is defined as utilising waste heat or underutilised energy generated during an industrial process.

Captive power plants were included in the new regulations and are defined as “where the generation of energy takes place for the purposes of the use of that energy solely by the person generating that energy”. In terms of the regulations, energy generated by a captive power plant will only qualify for this allowance where more than 35% of the total kilowatt hours of equivalent kilowatt hours of energy input in respect of that year of assessment be generated by the captive power plant.

From a measurement point of view Greenfield projects were included in the regulations. Greenfield projects are defined as “a project that represents a wholly new project which does not utilise any assets other than wholly new and unused assets”. The baseline for these projects will be measured against comparable data in the relevant sector.

The section 12L incentive will be claimed in a company’s income tax return and the measurement and verification of the energy savings and registration process with SANEDI will have to be done for each year of assessment to be eligible to claim the incentive.

It is very important that all entities who are considering taking advantage of this incentive to ensure that the project has not benefited from any concurrent benefit from any sphere of government as that project will be excluded form benefiting from this allowance. There are a number of available incentives for energy efficiency projects and it is imperative that a company considers all available energy efficiency incentives in order to obtain the optimal benefit under the available incentive opportunities. We are in a unique position at Catalyst Solutions to advise clients and to assist clients to optimise their grants and Energy Efficiency Tax Incentive claims.