Transforming tax liabilities into solar investments: The Section 12BA opportunity

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The Wisdom of Wealthy Investing

A recent tweet encapsulates a profound investment philosophy: “Regular people invest their own money. The wealthy invest via their own balance sheet.” As we stand in February, every South African taxpayer has either settled their taxes for the 2024 tax year, or they are facing a tax liability.

Section 12BA: A gateway to enhanced returns

What if there was a legal pathway to use your tax liability to not only fulfill your social responsibility but also to invest in solar energy, enhancing the returns on your hard-earned money? This is where the magic of Section 12BA comes into play.

A time-sensitive opportunity

For two tax years only, 2024 and 2025, South African taxpayers are presented with a rare opportunity. Given the ongoing struggle with load shedding, SARS offers a significant incentive for investments in solar energy – a step towards alleviating our national power crisis.

The mechanics of solar investment under Section 12BA

Here’s a hypothetical scenario to illustrate how it works:

Investment and Leverage: You invest R1 million in our solar fund. Additionally, we have arranged a loan of R520,000 in the partnership.

Asset Acquisition: With this combined amount, we purchase R1.52 million worth of solar assets.

Tax Deduction: Under Section 12BA, you receive a tax deduction of 125% of R1.52 million, equating to R1.9 million.

Tax Savings: This deduction leads to a tax saving or refund of R850,000, effectively reducing your at-risk investment to only R150k.

Revenue Generation: The electricity generated by these solar plants is projected to yield R4.1 million, post-expenses and fees.

Loan Repayment: Out of this revenue, we repay the loan and interest, totaling approximately R1.1 million.

Distribution of Profits: The remaining R3 million is distributed, but it’s subject to taxes of nearly R1.6 million.

Net Returns: Your initial R1 million investment, coupled with the tax refund and after-tax distributions, results in a total return of R2.25 million. This translates to an after-tax IRR of 15%, significantly higher than the 5-6% from risk-free investments.

A crucial deadline

The catch here is timing. The solar assets must be operational by 29 February 2024 to qualify for the tax break in the 2024 tax year.

Futureneers’ unique approach

Unlike other funds that raise capital first and rush to deploy it, Futureneers took a different approach. We developed the solar assets first, ensuring absolute certainty of their operational status by February, and now we’re raising capital.

The ultimate question

So, the real question facing every taxpayer is this: Do you want to pay your tax, or would you rather invest your tax liability into something that offers financial returns and contributes to solving South Africa’s power crisis?

Visit the Futureneers website for a personalised overview of a Section 12BA tax-structured investment and reserve one of the limited tax deduction spots before 19 February 2024.

(Please note that all calculations and figures are based on a 45% tax rate.)