Section 12B solar tax incentive for business

Section 12B of the Income Tax Act is South Africa’s solar tax incentive for business in 2026. A business that buys a solar system of 1 MW or less and brings it into use in its trade deducts 100% of the system’s cost from its taxable income in that tax year. For a company taxed at 27%, that is 27 cents back on every rand of the cost, in the first year.

The 125% deduction under Section 12BA ended on 28 February 2025 and was not renewed, so a system first used after that date gets 100%, not 125%. The 2026 Budget, tabled on 25 February 2026, created no new solar incentive. Some guides still show the 125%, and some still work the saving at the old 28% company rate. Both are out of date for a system first used today.

How does the Section 12B solar allowance work in 2026?

Section 12B lets a business write the cost of a solar system off against its taxable income far faster than ordinary plant. It is a capital allowance, and for solar PV the Act sets it at:

• 100% in year one for a system used to generate “photovoltaic solar energy not exceeding 1 megawatt”, the words of Section 12B(1)(h)(ii)(bb). Exactly 1 MW qualifies. Anything larger does not.
• 50%, 30% and 20% over three years for a PV system above 1 MW, and for wind, concentrated solar, hydro up to 30 MW and biomass plant.

Three rules matter on a commercial roof. The deduction is not pro-rated: SARS’s guide says a system brought into use on the last day of your financial year still earns the full deduction for that year. It must be claimed in the year the system is first used and cannot be held over to a later year. And each system is judged on its own: where a business owns several PV systems, SARS’s guide says “each photovoltaic solar system is considered separately” and their combined capacity is not relevant. Section 12B has no end date.

Section 12B vs 12BA: what happened to the 125% deduction?

It ended on 28 February 2025. Section 12BA gave a deduction of 125% of cost, with no size limit, for new and unused renewable generation assets first used between 1 March 2023 and 28 February 2025. It was written for the load-shedding years, the 2025 Budget did not extend it, and the tax chapter of the 2026 Budget Review does not mention Section 12B or 12BA at all.

So the date that matters is the date the system is first used, not the order date or the invoice date. A system first used on 28 February 2025 earned 125%. The same system first used on 1 March 2025 earns 100%. A business that claimed 12BA and sold the system before 1 March 2026 had an extra 25% of the recouped cost added to its income; from 1 March 2026 only the ordinary recoupment rules apply.

Table 1. Section 12B against the expired Section 12BA (12B vs 12BA)

Sources: Income Tax Act sections 12B and 12BA as reproduced in SARS Guide IT39 (23 November 2024); National Treasury FAQ on the enhanced incentive (2023); 2026 Budget Review, chapter 4.

How much tax does Section 12B save on a solar system?

For a company taxed at 27%, the deduction cuts its tax by 27% of the qualifying cost in the tax year the system is first used. Table 2 applies that to our published price bands for grid-tied rooftop systems. The bands are budget indications excluding VAT, not a price list, and a specific roof moves inside them.

Table 2. Net cost after tax on Focal’s price bands, ex VAT, at the 27% company rate

Assumes the business has at least that much taxable income in the year, pays tax at 27%, and is a VAT vendor claiming the input VAT separately. A 1,000 kWp system is on the line and qualifies for the 100%.

Worked example. A company with a February year-end brings a 200 kWp system into use in January 2027 at R1,570,000 excluding VAT. It deducts R1,570,000 in the year ending 28 February 2027. If its taxable income before the claim is at least that much, its tax for the year falls by R423,900, and the system has cost it R1,146,100 after tax. The cash arrives through the company’s tax payments for that year, the provisional payments and the final assessment, not on commissioning day.

The advantage is cashflow. Plant is normally written off over its useful life under the wear-and-tear allowance, which does not apply to these assets; Section 12B takes its place and brings the whole write-off into the first year. The tax relief arrives in the year the system starts saving, instead of in instalments over its life. On the 200 kWp example that is R423,900 in the first tax year, money that would otherwise have gone to SARS and can fund the next project or pay down the finance.

What the system saves on the electricity bill depends on the tariff: see our 2026/27 pages for City Power in Johannesburg, Tshwane, Ekurhuleni and Midvaal. A small business corporation, or a company with too little taxable profit to absorb the deduction in the year, saves less, or saves it later, than Table 2 shows (see the questions below).

Which costs qualify for Section 12B, and do batteries count?

The direct cost of buying and installing the generating system qualifies: the panels, the inverters, the DC combiners and cabling, a mounting structure built for the system, and the installation itself. The Act’s test is the direct cost of acquiring the asset, “including the direct cost of the installation or erection thereof”, capped at what an arm’s-length cash buyer would have paid on the day. SARS’s guide reads that to include installation planning, delivery of the panels and the installation safety officer. A foundation or mounting structure designed for the system and integrated with it is deemed part of the asset by the Act itself.

Batteries can qualify when they are part of the solar system. SARS’s position is that storage does not generate electricity, so a battery that only stores grid power does not qualify, but a battery that forms an integral part of a system that generates can. National Treasury said the same about storage and inverters when it explained the enhanced incentive in 2023. Each case turns on its facts, so design and quote the battery as part of the solar system if it is meant to be claimed, not as a separate purchase for backup.

Two boundaries matter when the quote is drawn up. If the system is financed, the deduction runs on the cash price; finance charges are not part of the cost. Roof and electrical work counts only where it is a direct cost of installing the system, not a general repair to the building, and whether a given item passes that test is a question of fact, so agree the scope with your adviser before splitting the work across contractors and invoices. A VAT vendor claims the 15% input VAT in the ordinary way, and the deduction runs on the VAT-exclusive cost.

Who claims Section 12B under cash, finance, a PPA or a rental?

The deduction follows ownership and use. It belongs to the business that owns the system, or is buying it under an instalment sale, and uses it to generate electricity in its own trade. That decides the answer under every structure:

• Cash purchase. You own it, you claim it.
• Asset finance or instalment sale. You claim it. The Act treats the buyer under an instalment credit agreement as the claimant, even though the financier holds title until the last payment.
• Power purchase agreement. The provider owns and runs the plant and sells you the electricity, so it claims the allowance. You deduct the per-kWh payments as an operating cost, as you do the municipal bill. Our finance page says the same about our own PPA.
• Rental or operating lease. You cannot claim, because you do not own the system, and SARS’s guide says the owner generally cannot either, because the lessee is the one using it to generate. Your rentals are an operating expense.
• Partnership. Under our partnership you own the system outright from day one, so the allowance is yours.
• Landlord supplying tenants. A landlord that owns a system on its building and sells the electricity to its tenants claims the allowance, as the owner that generates it.
• Wheeled power from a solar farm. There is no asset on your side of the meter. The farm’s owner is the one that can claim, and your energy cost is a normal expense.

You do not have to own the building. A tenant that owns a system on a landlord’s roof can claim, but under the common law a thing fixed to a building can become the landowner’s, so record in the lease before installation that the system remains the tenant’s property. Sole proprietors and trusts that carry on a trade claim in the same way as companies, on their own returns.

When can a business claim the Section 12B deduction?

In the tax year the system is “brought into use for the first time” for your trade, which SARS reads as the first time it is used the way it is meant to be used. Installation and testing do not count, and neither does the order or the payment date. SARS lists evidence that can prove the date: the electrical certificate of compliance, written confirmation from a registered person, usually the installer, of the date the system was installed and put to use, generation reports, and the contracts and invoices. Keep them with the tax file.

Because the deduction is not pro-rated and cannot be postponed, timing is worth planning. A system first used in the last month of your financial year earns the full deduction in that year; the same system first used a month later earns it in the next.

What changes above 1 MW, and is the 1 MW limit AC or DC?

Above 1 MW the deduction is 50% of cost in the year of first use, 30% in the second year and 20% in the third, the same schedule as wind, concentrated solar, hydro and biomass plant. The total is the same; only the timing differs. For illustration, on a R10,000,000 system that is deductions of R5,000,000, R3,000,000 and R2,000,000, worth R1,350,000, R810,000 and R540,000 at 27%, against R2,700,000 in the first year under the 100% rule. The second and third portions are only earned if the system is still in use in those years. National Treasury said in the 2025 Budget that it had reviewed the 1 MW threshold and would not change it.

Whether the 1 MW is AC or DC, neither the Act nor SARS’s guide says. The Act’s words are “photovoltaic solar energy not exceeding 1 megawatt”, which could mean the panel (DC) rating or the inverter (AC) rating. A 1,200 kWp array behind 1,000 kW of inverters is over the line on one reading and within it on the other. For a system designed near the line, get a written opinion, or ask SARS for a ruling, before the size is fixed.

What happens to Section 12B when the system or the building is sold?

A system written off in full has a tax value of zero, so when it is sold the proceeds, up to its original cost, are added back to income as a recoupment, and anything above cost is a capital gain. A building sold with the system on the roof takes the system with it, so the part of the price that relates to the system is treated the same way; agree that split with your adviser.

On the other side of the sale, a buyer that brings a second-hand system into use for the first time in its own trade can claim Section 12B on what it paid, because 12B, unlike the expired 12BA, does not require the asset to be new. The one exclusion is a system passed between companies managed, controlled or owned by substantially the same people in the same year, where the first company has already claimed.