Section 12B Tax Incentive: Qualifying Assets, Deductions, and Filing

The Section 12B tax incentive lets South African businesses write off the full cost of new renewable energy equipment used in their trade, either in a single year for small-scale solar PV or over three years on a 50/30/20 schedule for larger systems and other renewables. The allowance sits in Section 12B of the Income Tax Act (No. 58 of 1962) and remains available in the 2026 tax year. Its temporary big brother, Section 12BA, which offered a 125 percent deduction across all qualifying assets, expired on 28 February 2025.

Which Renewable Energy Assets Qualify

Section 12B covers machinery, plant, and equipment used to generate electricity from five renewable sources:

Wind power (the accelerated schedule is limited to installations of no more than 30 megawatts).
Photovoltaic solar, split into systems above one megawatt and systems at or below one megawatt because they depreciate differently.
Concentrated solar, with no capacity limit.
Hydropower, capped at 30 megawatts.
Biomass, including organic waste, landfill gas, and plant material, with no capacity limit.¹

Only assets that directly form part of the electricity generation plant count. Equipment used to produce heat, steam for non-electrical purposes, or other non-electrical energy is outside the scope of Section 12B. Every qualifying component must be new and unused. Second-hand equipment that any person previously operated for any purpose does not qualify, even if you refurbish it.²

How Much You Can Deduct

The deduction rate depends on the type and size of the installation. Two schedules apply under the permanent Section 12B rules.

Solar PV of One Megawatt or Less: 125 Percent in Year One

Under Section 12B(4B), photovoltaic solar systems with a generation capacity of one megawatt or less qualify for a 125 percent deduction of cost in the single year the system is brought into use.¹ If your business spends R800,000 on a qualifying rooftop array under one megawatt, you deduct R1,000,000 against taxable income. The extra 25 percent above actual cost is where the incentive really bites: it produces a tax benefit larger than the cash outlay.

Everything Else: 50/30/20 Over Three Years

Wind turbines, concentrated solar systems, hydropower, biomass plants, and solar PV installations exceeding one megawatt follow a three-year write-off. You deduct 50 percent of cost in the year the asset is first brought into use, 30 percent in the second year, and 20 percent in the third. On a R2 million wind turbine brought into use in your 2026 tax year, that produces a R1 million deduction in year one, R600,000 in year two, and R400,000 in year three.

The deductible cost includes the equipment, delivery, engineering fees, foundations, mounting structures, and installation labour. VAT vendors calculate the base cost excluding VAT, since input tax is recovered separately. The depreciation percentages apply to the qualifying cost whether you paid cash, borrowed from a bank, or bought under an instalment credit agreement.

Who Can Claim and How the Asset Must Be Used

You must own the asset or have acquired it as the purchaser under an instalment credit agreement as defined in the Value-Added Tax Act. Financial or operating leases where ownership never passes to you may not qualify, because SARS looks at whether you carry the risks and rewards of ownership rather than simply whether you make payments.²

The asset must be used for the purpose of your trade and in the production of income. A rooftop solar system powering your factory or office building meets the test. A system installed at a private residence that generates no business income does not. Trade use has to continue for the period over which the deduction is claimed; if you stop using the asset in your trade, the remaining allowance falls away.

Assets previously used by a company under the same management or control as the taxpayer are also excluded. The provision is designed to add new generation capacity, not to reshuffle existing equipment within a group.¹

What Section 12BA Means Now

Section 12BA was a temporary provision that gave a 125 percent first-year deduction on all qualifying renewable energy assets with no capacity limit. It applied only to assets brought into use for the first time between 1 March 2023 and 28 February 2025.³ Any asset brought into use on or after 1 March 2025 falls back to the standard Section 12B rules described above. Selecting Section 12BA on your return for an asset brought into use after that date will produce an incorrect assessment.

If you claimed Section 12BA on an asset, you cannot also claim Section 12B on the same asset.¹ The 12BA rules still matter if you’re now thinking of selling equipment on which you claimed it, because of the recoupment consequences covered below.

How to File the Claim

Individual taxpayers file on the ITR12 and companies on the ITR14, both through SARS eFiling. The return contains a dedicated container for renewable energy investment incentives that has to be activated to reveal the data entry fields.

For companies, Section 12BA claims sit under “Details of Enhanced Renewable Energy Deduction – S12BA” within the Special Allowances section of the ITR14.⁴ For the standard Section 12B allowance, enter the total qualifying cost and the brought-into-use date in the corresponding fields. The date must match your supporting documents exactly; SARS’s automated systems flag discrepancies and will send follow-up queries.

Before filing, assemble your supporting pack. Have it ready in advance, not scrambled together after a verification request arrives. The core documents are:

Tax invoices and proof of payment covering the equipment, delivery, engineering, and installation, which establish the deductible cost base.
Proof of the “brought into use” date. SARS accepts an electrical certificate of compliance, written confirmation from a registered person of the installation and commissioning date, generation and utilisation reports, initial metering reports if you sell electricity, and the relevant contracts and invoices. The onus rests entirely on you to prove when the asset became operational.²
Technical specifications showing the system’s generation capacity, since the deduction rate depends on whether solar PV falls above or below one megawatt.

VAT vendors should keep VAT-inclusive and VAT-exclusive figures clearly separated in their records. Section 12B is calculated on the VAT-exclusive cost, and SARS may query the difference if invoices and the return do not reconcile.

What SARS Will Ask For After You File

Renewable energy claims routinely trigger a Request for Relevant Material. That is not an accusation of wrongdoing; it is the standard verification path for this deduction. SARS issues an official letter specifying which documents to upload and the deadline for doing so.

Upload the documentation directly through eFiling as clear, legible PDFs. SARS aims to complete the verification within 21 business days of upload.⁵ Complex claims or incomplete submissions can extend that timeline. Missing the stated deadline can result in SARS disallowing the deduction and issuing a revised assessment with additional tax owing.

Once the review is complete, SARS issues a notice of assessment confirming whether the claim was accepted or adjusted. If the deduction is reduced or disallowed, the notice explains the basis, and you can dispute it through the formal objection and appeal process. Keep the full document set, digital and physical, for at least five years, since SARS can reopen assessments within that period under certain circumstances.

What Happens When You Sell the Asset

Most businesses forget this part. If you sell a renewable energy asset for more than its remaining tax value, the difference is recouped, meaning it is added back to your taxable income in the year of disposal. Under Section 8(4)(a), the recoupment equals the proceeds (capped at original cost) minus the asset’s tax value.¹

For assets written off on the 50/30/20 schedule, tax value reaches zero after year three, so selling at any price triggers recoupment equal to the sale proceeds (up to original cost). Any excess above original cost is a capital gain under the Eighth Schedule.

Section 12BA assets carry a harsher rule under Section 8(4)(nA). For disposals before 1 March 2026, the full 125 percent of the proceeds (or of original cost, if you sold at or above cost) was included in income. For disposals on or after 1 March 2026, the recoupment equals the lesser of the proceeds and the 125 percent allowance previously claimed.² If you claimed 12BA and still hold the asset in 2026, selling it will create taxable recoupment income; factor that into any disposal decision.

Sub-one-megawatt solar PV that qualified for the enhanced deduction under Section 12B(4B) is not subject to recoupment under Section 8(4)(a). That carve-out makes small-scale solar particularly attractive, though a capital gain or loss on disposal still applies under the Eighth Schedule.¹

Mistakes That Cost Businesses Money

The most expensive error is timing. Businesses that ordered equipment before 28 February 2025 expecting Section 12BA but only brought the system into use after that date lost access to the 125 percent deduction entirely. The test is the operational date, not the purchase order date.

The next common problem is claiming the deduction for assets that fail the ownership test. If your solar installation is funded through an operating lease where the lessor retains ownership and all risk, you likely have no claim. Instalment sale agreements where ownership passes on final payment generally do qualify, but the contract needs to be examined carefully.

Finally, many taxpayers ignore recoupment when running their cost-benefit numbers. Section 12B accelerates a deduction; it does not create a permanent exemption. On installations you plan to operate for 15 to 25 years, recoupment is rarely a concern. On equipment you might sell after a few years, the recoupment bite can erase much of the original benefit.

1
South African Revenue Service. Draft Guide on the Allowances and Deductions Relating to Assets Used in the Generation of Electricity from Specified Sources of Renewable Energy
2
South African Revenue Service. Guide on the Allowances and Deductions Relating to Assets Used in the Generation of Electricity from Specified Sources of Renewable Energy
3
National Treasury. Frequently Asked Questions – Enhanced Renewable Energy Incentive for Businesses
4
South African Revenue Service. How to Complete the Income Tax Return ITR14 for Companies
5
South African Revenue Service. Being Audited or Selected for Verification