Section 12B: the solar tax deduction for businesses

For a business or farm that pays tax, the Section 12B allowance can make a significant difference to the cost of a solar system. This guide summarises how it works, based on the SARS guide to the allowances. It is general information, not tax advice: your accountant or tax adviser should confirm how it applies to you.

What Section 12B allows

Section 12B of the Income Tax Act gives an accelerated deduction for assets used to generate electricity from renewable sources, including solar photovoltaic (PV) [1]:

• Solar PV of 1 MW or less: 100% of the cost can be deducted in the year of assessment in which the system is first brought into use.
• Solar PV above 1 MW (and other renewable sources): 50% in the first year, 30% in the second and 20% in the third.

The deduction is not pro-rated. If the system is first brought into use near the end of your tax year, the first-year portion can still be claimed in full for that year, but it cannot be postponed to a later year [1][2].

Who can claim it

According to SARS, the deduction can be claimed when [1]:

• the asset is owned by the taxpayer, or acquired as a purchaser under an instalment credit agreement;
• it is brought into use for the first time by that taxpayer;
• it is used for the purposes of the taxpayer’s trade; and
• it is used by that taxpayer in the generation of electricity from a specified renewable source.

The cost that qualifies is the direct cost of acquiring the asset, including the costs of installation and erection, and the foundations or supporting structures it is mounted on [1][2].

Cash, loans and asset finance versus rental and PPAs

Because the deduction depends on ownership, how you pay matters:

• Cash, a bank loan or asset finance under an instalment credit agreement: the business owns the system (or acquires it as a purchaser on instalment credit), so it can potentially claim the deduction.
• Rental, rent-to-own and power purchase agreements (PPAs): if a provider owns the system and you pay to use it or buy its power, you are generally not the owner, so you generally cannot claim Section 12B on it. SARS also notes that an owner who lets an asset to a lessee generally gets no Section 12B allowance, because the lessee is the one using it to generate electricity [1].

If you lease the property, check who will own the system once it is fixed to the building. The SARS guide gives examples of how permanent and temporary installations by a tenant are treated [1]. Our finance page compares the ways to pay.

Are batteries included?

This is where many claims go wrong. SARS says that assets used only for storage, such as batteries, do not generate electricity and generally do not qualify on their own. However, if a battery forms an integral part of a system that generates electricity, its cost may be deductible if the requirements are met. A battery that only charges from the grid does not qualify. SARS adds that each case depends on its facts [1].

In practice, a battery charged by your solar array as part of one designed system is in a different position from a standalone backup battery. Keep the design documents that show how the system works, and discuss the battery portion with your tax adviser.

The 125% allowance has ended

From 1 March 2023 to 28 February 2025, Section 12BA allowed a 125% deduction for qualifying new and unused renewable energy assets brought into use in that window, with no capacity cap [1][3]. It was not renewed. Systems brought into use from 1 March 2025 fall under Section 12B [3]. If a quote or article still promises 125% for a new system, it is out of date.

National Treasury also confirmed in the 2025 Budget that the 1 MW threshold for the 100% deduction would not be changed [3].

A simple illustration

The SARS guide uses a worked example in which a company brings a solar PV system of under 1 MW into use and deducts its full cost in that year of assessment [1]. The value to the business is the tax that the deduction saves, at the company’s tax rate, provided it has enough taxable income. Your accountant can model this for your own figures, alongside your electricity savings.

What to give your accountant

• the tax invoice and contract, with the system size in kW (and confirmation that the PV is 1 MW or less);
• a breakdown of costs: panels, inverters, mounting structures, batteries and installation;
• the date the system was first brought into use, supported by the commissioning records, CoC and SSEG registration;
• the finance agreement, if you used one, showing whether it is an instalment credit agreement;
• the single-line diagram and design documents that show how any battery is charged.

Registration is a separate legal requirement, explained in our guide to SSEG approval.

Where Orilla Solar fits

We don’t give tax advice, but we provide the documents your accountant needs and design systems around your real usage. For commercial and farm solar, we use data logging to measure your consumption, so the system and its savings are based on measurements, not guesses. For a first look, try the savings calculator.