Section 12B Explained: Claiming 100% in Year One on Business Solar

Section 12B of the Income Tax Act lets a business deduct the full cost of a solar PV system of one megawatt or less from its taxable income in the year the system is brought into use. It is the main solar tax incentive for businesses in South Africa: for a company taxed at 27%, every R1 million spent on a qualifying system takes R270,000 off that year's tax bill.

Who owns the system, when it is switched on, what the invoice includes and whether VAT is in the figure all change what you can claim. At Phoenix Energy we design, fund and build commercial solar, and the deduction is part of the business case for every system a client buys outright: we model the payback with it in the year the system is brought into use. This guide sets out the rule as it stands in October 2026. It is checked against SARS's guide to the allowance (IT39), the Act and National Treasury's budget documents, with references at the end. Your tax adviser should confirm how it applies to you.

deduction in year one for solar PV of 1 MW or less

100%

split over three years for solar PV above 1 MW

50/30/20

company tax rate, so R1 of deduction saves 27c of tax

27%

Checked against the Act, SARS Guide IT39 and National Treasury documents on 13 October 2026. We will review it after the 2026 Medium-Term Budget Policy Statement and the 2027 Budget.

What is Section 12B?

Section 12B gives accelerated capital allowances on certain machinery and plant, including machinery used in farming and assets that generate electricity from renewable sources. This guide covers the renewable energy part, section 12B(1)(h): wind, solar PV, concentrated solar, hydropower of up to 30 MW, and biomass from organic waste, landfill gas or plant material. For solar PV of one megawatt or less, the whole cost is deductible in the year the system is first used.

SARS applies four tests (IT39, p. 2). The asset must be:

• Machinery, plant, an implement, utensil or article.
• Owned by the taxpayer, or bought under an instalment sale.
• Brought into use for the first time by that taxpayer, for its trade.
• Used by that taxpayer to generate electricity.

The third test is why a homeowner cannot claim for a private home: the system has to be used in a trade. Where part of a home is used for a trade, SARS accepts a share based on floor area (IT39, pp. 33 to 34). The tax credit that individuals could claim for rooftop panels under section 6C ran only from 1 March 2023 to 29 February 2024, and has ended.

How much you can deduct: 100% or 50/30/20

These details matter:

• The 1 MW test applies to each system separately. SARS says the combined capacity of several systems owned by one business "is not relevant" (IT39, p. 22). What counts as a separate system is a question of fact for your adviser.
• SARS doesn't say whether the megawatt is measured on the panels (the DC rating in kWp) or the inverters (the AC rating in kW). If your system is near 1 MW on either measure, ask your adviser before you rely on the 100% rate.
• There is no apportionment. A system brought into use on the last day of your year of assessment gets the full first-year deduction.
• The first-year portion can't be postponed. It has to be claimed in the year the system is brought into use, even if you would rather use it later.
• For systems above 1 MW, the 30% and 20% are claimable only if the system is still in use in those years. A year you miss is forfeited.

Section 12B and the expired 125%: what changed in 2025

Between 1 March 2023 and 28 February 2025, the enhanced solar tax incentive in section 12BA offered 125% of the cost in the first year, with no size limit. It was not renewed, and it no longer applies to anything brought into use after 28 February 2025. Some pages that rank for this search still describe it as current.

In its 2025 Budget Review, National Treasury returned to the two features of 12B it had said in 2024 it would reconsider, the leasing rule and the 1 MW threshold, and concluded: "it is proposed that these two design features remain unchanged". No amendment since has changed section 12B.

What qualifies, and what doesn't

The deduction is on cost, and SARS measures cost as the lower of what you actually paid and what the system would have cost in a cash sale at arm's length, including the direct cost of installing it (section 12B(3)). On that wording, interest and finance charges sit outside the 12B cost.

What counts:

• Panels, inverters, mounting systems and cabling that form part of the generating system. In one class ruling (BCR 88) SARS also accepted transformers, generation metering and monitoring systems.
• Direct installation costs. SARS gives installation planning, panel delivery and the installation safety officer as examples (IT39, p. 20).
• Foundations and supporting structures, if they were designed for the system, are integrated with it, and will last no longer than it does.
• Second-hand equipment. Section 12B does not require the system to be new, as long as you are the first to bring it into use in your trade. The exception is a transfer in the same year between companies under substantially the same control.

What doesn't count:

• Strengthening the roof the panels sit on. SARS's example is a factory roof reinforced to carry panels: it is part of the building and outlives the panels, so it fails the test (IT39, p. 15).
• A battery that only stores power from the grid. A battery that forms an integral part of a generating system may qualify, depending on the facts (IT39, p. 8).
• Costs you are not yet liable to pay, such as contingent or anticipated amounts.

Two other sections sometimes come up. Section 12U covers roads and fences for renewable projects above 5 MW, so it rarely applies to a business site. Section 12L, which the 2026 amendments extended to years ending before 1 January 2031, rewards energy efficiency savings, measured against a baseline and certified by the prescribed body, at 95 cents per kWh; it is separate from 12B, and both can be claimed if each set of rules is met. 12L is most relevant to our Energy Optimisation work.

Who can claim Section 12B: purchase, instalment sale, lease or PPA?

Section 12B goes to the owner who uses the system in its trade, or to a buyer under an instalment sale as paragraph (a) of the VAT Act defines it: payment over time, finance charges stated, and ownership passing once the instalments are paid. How you fund the system therefore decides who gets the deduction.

The lease rule surprises people. Under the expired section 12BA a lessor could claim on a system used by its lessee; under section 12B it generally cannot, and Treasury chose in 2025 to keep it that way. If you are offered a lease, ask your adviser to read the agreement before you count a 12B saving into the numbers.

We offer outright purchase, a Power Lease Agreement and a PPA, and we model each one separately for this reason: the tax treatment changes the comparison. If you are considering our Power Lease Agreement, ask us for the agreement and have your tax adviser classify it before you count on the deduction. The funding options on our C&I page set out the terms. Our client at a Bellville logistics warehouse bought its 82.8 kWp array and battery outright, the route this guide is mainly about. Our guide to commercial solar costs and payback compares the three routes on a worked example.

What Section 12B is worth in cash: three examples

The examples below assume a company taxed at 27%, with illustrative figures. Individuals and small business corporations pay on a sliding scale, so their saving per rand differs.

1. A 200 kWp rooftop system bought outright for R2.4 million, excluding VAT. It is below 1 MW, so the whole R2.4 million is deductible in the year it is brought into use, cutting that year's tax by R648,000, provided the company has at least R2.4 million of taxable income that year. If the company is a VAT vendor, it also claims the R360,000 of input VAT back on its VAT return, and section 23C keeps that VAT out of the 12B cost. A business that is not a VAT vendor can't reclaim the VAT, so its 12B cost is the VAT-inclusive R2.76 million, worth R745,200 in tax.

2. A 1.5 MWp ground-mounted system for R15 million, excluding VAT, above 1 MW on both its panel and inverter ratings. Above 1 MW, the deduction spreads over three years:

The total is the same as it would be under the 100% rate, spread over three years.

3. A company with less taxable income than the deduction. Say the company in example 1 expects R1.5 million of taxable income before the solar deduction. The R2.4 million deduction turns that into an assessed loss of R900,000, which carries forward. Since years ending on or after 31 March 2023, a company can set off a brought-forward loss only up to the higher of R1 million or 80% of that year's taxable income. In year one the company pays no tax instead of R405,000. With R1.5 million of taxable income the next year, the cap is R1.2 million, so the whole R900,000 is used and the remaining R243,000 of the benefit arrives then. The cap starts to bite on larger losses: a R5 million loss against R3 million of taxable income uses R2.4 million and carries R2.6 million forward again. The deduction is not lost, but the cash benefit arrives later.

When is the deduction claimed?

The deduction belongs to the year of assessment in which the system is "brought into use", and that is a matter of fact, not of invoicing. SARS says the installation and testing phase does not count (IT39, p. 11). The evidence it lists includes the electrical certificate of compliance, written confirmation of the installation date from a registered person, generation and metering reports, and the contracts and invoices.

Which year that falls in depends on your year-end. For a company with a February year-end, a system brought into use, generating for the business after testing, on 20 February 2027 falls in the year ending 28 February 2027 with the full deduction, while one brought into use on 2 March 2027 falls in the next year. If a project is running close to year-end, plan for either outcome.

The deduction can go into your provisional tax estimates for that year, since they estimate taxable income after allowances. The second estimate, due by the last day of the year, is the safer place for it, once commissioning is certain. If the system slips into the next year, an estimate that assumed the deduction may be too low. Where actual taxable income is above R1 million and the second estimate falls below 80% of it, SARS can charge a penalty of 20% of the difference between the tax on 80% of actual taxable income and the tax on the estimate. The first estimate also can't be lower than your last assessed taxable income unless the facts justify it.

If you sell the system later

Selling a system you have claimed under section 12B triggers a recoupment. The amount recouped is what you sell it for, capped at the original cost, less its tax value, and it is taxed as income (section 8(4)(a); IT39, p. 31). If you claimed 100% on a R1 million system, its tax value is nil, so selling it for R400,000 adds R400,000 to your income, R108,000 in tax at 27%. Anything you receive above the original cost falls under capital gains tax. On a system above 1 MW, no further 12B instalments can be claimed in the years after the sale.

A buyer can claim 12B on a second-hand system it brings into use for the first time, which is one reason an existing system can hold its value. Our WeBuySolar service buys existing commercial systems, and you can request a valuation of yours, which our team prepares after an on-site audit.

Section 12B investments

Section 12B is also the basis for investment products in which individuals, trusts or companies become limited partners in a solar portfolio that sells power under PPAs, and claim a share of the allowance. SARS has issued class rulings on such partnerships (BCR 85 on 9 December 2022 and BCR 88 on 22 February 2024), but a class ruling binds only the parties it was issued to. Under section 24H, a partner's deductions are capped at what that partner can be held liable for plus its share of the partnership's income, and the allowance is recouped when the partnership interest is sold. These are financial products with their own risks. Speak to a licensed financial adviser and your tax adviser before investing.

What to keep for SARS

When you buy outright, keep these together in the asset file:

• The supplier's invoice, with the VAT shown separately and installation costs itemised.
• The certificate of compliance and the date the system was brought into use.
• Generation or metering reports from the first weeks of operation.
• The system's capacity, both the panel rating in kWp and the inverter rating in kW, to show which side of 1 MW it falls.
• The contract, and for leased premises, how the system is fixed to the building.

Frequently asked questions

Can an individual claim Section 12B?

Yes, if the individual uses the system in a trade, for example as a sole proprietor or farmer. Not for a private home: the section 6C credit for household panels ran only from 1 March 2023 to 29 February 2024. Where part of a home is used for a trade, SARS accepts a share based on floor area.

Is the 125% solar tax deduction still available?

No. Section 12BA's 125% applied only to assets brought into use between 1 March 2023 and 28 February 2025, and it was not renewed. Section 12B still allows 100% in the first year for solar PV of one megawatt or less, and 50%, 30% and 20% over three years above that.

Does the 1 MW limit apply per site or per business?

Per system. SARS's guide says each photovoltaic system is considered separately, and the combined capacity of all the systems a business owns is not relevant (IT39, p. 22).

Do batteries qualify for Section 12B?

Only as part of a generating system. A battery that forms an integral part of a system that generates electricity may qualify, depending on the facts. A battery that only charges from the grid does not (IT39, p. 8).

Can I claim Section 12B if I lease the system or buy power under a PPA?

Under a PPA, no: the provider owns the system and claims the deduction. Under a plain lease, generally no one can claim, because you don't own the system and the lessor doesn't use it. If ownership passes to you at the end, it depends on whether the agreement is in substance an instalment sale, which your tax adviser should check.

Can I claim if I buy the system on finance?

Yes, if the finance is an instalment sale as the VAT Act defines it: you are the buyer, finance charges are stated, and ownership passes once you have paid. You claim from the year the system is brought into use, and the seller can't. On the wording of the Act, the finance charges themselves are not part of the 12B cost.

What happens if I sell the system later?

The sale triggers a recoupment: the price, capped at the original cost, less the system's tax value, is added to your income. If you claimed 100%, the tax value is nil, so the whole price up to cost is taxed. Anything above the original cost falls under capital gains tax.

What if my company has no taxable income this year?

The deduction still has to be claimed in the year the system is brought into use. It creates or increases an assessed loss, which carries forward while the company keeps trading, and is set off against future taxable income up to the higher of R1 million or 80% of that income each year.

Can I claim VAT back as well?

Yes, if you are a VAT vendor using the system in your taxable business. You claim the VAT as input tax, and your 12B deduction is on the VAT-exclusive cost. Adding the VAT refund to the tax saving and quoting it as one figure overstates the benefit.

Can a sole proprietor or a farm claim Section 12B?

Yes. Any taxpayer that uses the system in its trade can claim: a company, a sole proprietor, a trust, or the partners in a partnership, each on their share. The tax saved depends on the taxpayer's own rate, which for individuals and small business corporations is not 27%. Farms can use it for solar on boreholes and packhouses; our guide to solar borehole pumps shows how the array and the pump are treated differently.

Sources

• SARS, Guide IT39 on allowances for assets used in generating electricity from renewable energy, 23 November 2024, pp. 2, 8 to 12, 15, 20 to 22, 28, 31 and 33 to 34.
• Income Tax Act 58 of 1962, section 12B, as last amended by the Taxation Laws Amendment Act 17 of 2023; section 8(4)(a); section 20(1)(a); section 23C(1).
• National Treasury, Budget Review 2025, chapter 4, p. 42, "Review of the renewable energy allowance".
• SARS, Binding General Ruling 73, 30 July 2024: set-off of assessed losses by companies.
• SARS, Binding Class Ruling 88, 22 February 2024, and Binding Class Ruling 85, 9 December 2022.
• SARS, Guide IT35 on the taxation of farming operations, 13 October 2023, pp. 30 to 31: section 12B on farming machinery.
• SARS, Guide IT37 on the solar energy tax credit (section 6C), 8 March 2024.
• SARS, Guide for Provisional Tax, revision 28, effective 29 June 2026.
• Taxation Laws Amendment Act 5 of 2026, 1 April 2026: extension of section 12L.
• SARS, Tax rates for companies: 27% for years of assessment ending on or after 31 March 2023.