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With tax season fast approaching, provisional taxpayers are getting ready to make their first provisional payments from 15 July to 31 August 2024. The savviest among them are capitalizing on the National Treasury’s renewable energy tax incentive to reduce their tax liability.
The provisional tax system aids taxpayers by spreading tax payments throughout the year, promoting better financial planning and record keeping. This system targets taxpayers who earn income outside of a PAYE salary, including companies, trusts, and qualified professionals that earn pre-taxed income. As a PAYE-salaried individual, you can still qualify as a provisional taxpayer if you have an additional income stream exceeding R30,000 annually.
Provisional tax is divided into two instalments, each covering 50% of the total annual tax liability. The first instalment is due at the end of August, and the second at the end of February. Typically, deductible expenses are those that assist in generating income, which can vary greatly. However, there are universal personal deductions that everyone can utilize to reduce their tax liability. These include retirement fund contributions, medical expenses, donations to approved public benefit organizations (PBOs) and, not least, contributions to renewable energy, which offer an impressive 125% deduction on qualifying assets brought into use in the 2024–2025 tax year. Made possible by Section 12BA of the Income Tax Act, the renewable energy deduction is unique as it is the highest deduction seen in recent memory. But it is available for just one more year.
Download the Decentral 12B Energy Fact Sheet Here.
Section 12B investments have gained popularity since their launch last year, especially among high-net-worth individuals looking to reduce their tax liability. The 125% deduction translates directly into substantial tax savings, with the exact amount varying according to the taxpayer’s tax rate. Indicative tax savings for different tax brackets are as follows:
For example, for every R100 invested, investors in the 41% tax bracket can earn R51.25 back in tax savings, while those in the top 45% tax bracket will receive R56.25 back.
Certain 12B investment providers such as Decentral Green Energy (DGE) have multiplied the deduction further by incorporating debt. This approach allows one to deploy solar using a combination of equity and debt to earn the 125% deduction on both. For example, if R100 of equity is invested and R80 of debt is taken out, the investor can claim the 125% deduction on the total of R180, despite only contributing R100. Thanks to this innovative approach, DGE enables investors to claim a 222% deduction on the invested amount.
Download the Decentral 12B Energy Fact Sheet Here.
Capital returned through tax savings by the DGE 12B investment can be seen below:
In this instance, a 41% taxpayer receives R91.10 back for every R100 invested whereas a 45% taxpayer receives an impressive R100 back for every R100 invested. The deduction and structure have been developed in consultation with tax and legal advisors at Webber Wentzel, thereby giving investors further peace of mind.
For this investment, funds are deployed into a highly diversified portfolio of renewable energy projects which distribute yields annually to investors. Investors can use their tax money to contribute to a more energy-secure South Africa, while earning inflation-protected yields.
With the provisional tax deadline fast approaching, now is the perfect time to consider a 12B investment to maximize your tax savings. The 12B tax incentive offers an unparalleled opportunity to not only reduce your tax burden but also to contribute to a sustainable future. Pangea Wealth, serving as the distribution and administration partner for Decentral Green Energy, is ready to help investors leverage this unique tax-saving incentive. Investors aiming to reduce their tax liability may contact a Pangea Wealth representative to explore how they can benefit from this opportunity.
Download the Decentral 12B Energy Fact Sheet here.
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