Section 12 L of the Income Tax Act - SANEDI ESCo Workshop

Section 12 L
         of
 the Income Tax Act

SANEDI ESCo Workshop
     22 January 2014

     www.saneditax.org.za
                            Barry Bredenkamp
                            SANEDI

Old Chinese Proverb

“A journey of 1000 miles begins with
                  the
              first step!”

The Act
Section 12L of the Income Tax Act, 1962, on the allowance for Energy Efficiency Savings,
as inserted by Act 17 of 2009, amended by Act 7 of 2010 and substituted by Act 22 of 2012.

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The ACT
 (1) For the purpose of determining the taxable income derived by any
person from carrying on any trade in respect of any year of assessment
ending before 1 January 2020, there must be allowed as a deduction from
the income of that person an amount in respect of energy efficiency savings
by that person in respect of that year of assessment.

(2) The amount of the deduction must be calculated at 45 cents per kilowatt
hour or kilowatt hour equivalent of energy efficiency savings.

(3) A person claiming the deduction allowed during any year of assessment,
must obtain a certificate issued by SANEDI, in respect of the energy
efficiency savings for which a deduction is claimed in respect of that year of
assessment.

The ACT … cont’d
(a) the baseline at the beginning of the year of assessment;
(b) the reporting period energy use at the end of the year of
assessment;
(c) the annual energy efficiency savings expressed in kilowatt
hours or kilowatt hours equivalent for the year of assessment,
including the full:-
• criteria and methodology used to calculate the energy efficiency savings; and
• any other information prescribed by the regulations.

4) A deduction must not be allowed in terms of this section if the
person claiming the allowance receives any concurrent benefit in
respect of energy efficiency savings.

The Regulations
Regulation No. R 971 in Terms of Section 12L of the Income Tax Act, 1962, on the allowance
                            for Energy Efficiency Savings.

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No. 37136 GOVERNMENT GAZETTE, 9 December 2013
GOVERNMENT/ REGULATION GAZETTE
NATIONAL TREASURY
No. 10080 9 December 2013
CONTENTS

Government Notice
R. 971. Income Tax Act, (58/1962): Regulations in terms of section 12L of the Income
Tax Act, 1962, on the allowance for Energy Efficiency Savings, preceded by Notice 855
of the date upon which section 12L (deduction in respect of energy efficiency savings),
as inserted by Act 17 of 2009, amended by Act 7 of 2010 and substituted by Act 22 of
2012 comes into operation on 1 November 2013.

Printed by and obtainable from the Government Printer, Bosman Street, Private Bag X85,
Pretoria, 0001

The Regulations Cover……
•   Definitions
•   Procedure for Claiming the Allowance
•   Content Requirements of the Certificate
•   Baseline Calculation, ref. SANS 500 10:2011
•   Concurrent Benefits; and
• Limitations, (Exclusions)

The Big Question????
• 45 c/kWh OR 12c/ kWh?
        Scenario 1                                     Scenario 2
        R100.00 Profit                                 R100.00 Profit
        Less R28.00 (28% Tax)                          + 12L Rebate 45.00
        = R72.00                                       = R145.00
        + 12L Rebate 45.00                             Less R40.60 (28% Tax)

        R117.00                                        R104.40
                 Note: Would have been R72.00 WITHOUT any INCENTIVE.
(*)   Saving 100 kWh during the period of assessment

Guidelines
(in support of the 12-L Regulations)

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Guidelines, (in support of the Regulations)
Provide more detailed explanations/ assistance
to prospective Applicants & includes:-
 A basic calculation, to obtain an initial assessment of the
 feasibility for applying for the 12-L Tax Incentive;
 Project eligibility/ key criteria/ cost of M & V, to consider;
 Defining Load Shifting vs Energy Efficiency vs Energy
 Conservation projects in relation to 12-L eligibility;
 Highlighting specific exclusions from the Incentive;
 An explanation of the time limitations relating to this
 Incentive;
 A description of the various eligible Energy Carriers and
 Conversion Factors to kWh, for rebate purposes.

SANEDI
           The South African National Energy Development Institute
A state owned Entity established under Section 7 of the National Energy Act 2008
                              (Act No.34 of 2008).

                               www.sanedi.org.za

The South African National Energy Development Institute

 mandate   The National Energy Act, 2008 (Act No.
           34 of 2008), Section 7 (2) provides for
           SANEDI to direct, monitor and conduct
           energy research and development, as
           well as undertake measures to promote
           energy efficiency throughout the
           economy.

                                                          13

SANEDI’s “Value Add”
• Must provide an ‘Assurance Function’ to SARS.
• Must consolidate, analyse and report to DoE, National
  Treasury and SARS.
• Must assist wherever possible, to ‘make it happen’!
• Provide and maintain the on-line database, to
  streamline the process.
• Develop and improve the Guidelines.
• Integrate current fragmented basket of activities into a
  ‘workable’ solution!

Conclusion
    and the
Way Forward

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Conclusion & the Way Forward
 Continue the ‘walk’, to resolve any misunderstandings, relating
 to interpretation of the Act and Regulations.
 implementing and refining/ improving the system and all
 supporting documentation.

 Conduct ‘Information Sessions’ throughout the country, to
 inform and educate all constituents about the incentive.

 Independently commission a bi-annual review of the
 functionality of the system, as well as the overall
 energy-and-economic impacts of the 12-L Tax Incentive.

 Unlike most other incentive schemes, severe penalties DO
 apply in the case of the Income Tax Act!

Access to some clever people
            and ………….

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Content of Presentation
1. The Act

2. The Regulations

3. Guidelines, (in support of the Regulations)

4. SANEDI’s “Value Add”

5. Conclusions & ‘The Way Forward’

Important Component of the Regulations
For the purpose of this regulation—
• “co-generation” means combined heat and power;
• “combined heat and power” means the production of electricity
   and useful heat from a fuel or energy source which is a co-
   product, by-product, waste product or residual product of an
   underlying industrial process;
• “energy from waste” means waste or under-utilised energy in the
   form of process furnace off-gas from an industrial process;
• “renewable sources” means—
       (a)     biomass;
       (b)     geothermal;
       (c)     hydro;
       (d)     ocean currents;
       (e)     solar;
       (f)     tidal waves; or
       (g)     wind.

Important Component….cont’d
“waste heat” means heat that is—
(a) produced directly by an industrial process or
machines or equipment utilised in that industrial
process; and
(b) regarded as a waste by-product that is not utilised
    for any useful application; and

“waste heat recovery” means utilising waste heat or
underutilised energy generated during an
industrial process.

Important Component….cont’d
• SANAS-accredited M & V mandatory
• No minimum or maximum project size - 1 GWh/
  p.a. appears to be an economically viable threshold

Regulation Limitations
A person may not receive the allowance in respect of
energy generated from renewable sources or co-
generation, other than energy generated from waste
heat recovery.
A person generating energy through a captive power plant
may not receive the allowance, unless the kilowatt hours
or the equivalent kilowatt hours of energy output of that
captive power plant in respect of a year of assessment is
more than 35 per cent of the kilowatt hours or the
equivalent kilowatt hours of energy input in respect of that
year of assessment.

Basic On-line System
      Functions

     www.saneditax.org.za

System SECURITY
The 12-L Energy Efficiency TAX On-line
System has been developed, using the concept
of (WAMP) Windows-Appache-PHP-MySQL
DataBasE and is currently hosted by Hetzner.

In order to professionally secure this website, it
was decided to apply for a SSL certificate for the
current (to be revised), saneditax.org.za domain
and this certificate has already been issued
by Hetzner.

Basic Functions         System layout and
                        domain are
                        currently being
                        revamped, to
                        include all logos!

  Figure 1. Home Page

Basic Functions

  Figure 2. Log-in Page

Basic Functions

Figure 3. Claimant Registration Page

Basic Functions

Figure 4. M&V Inspection Body Registration Page

Claimant Functions

 Figure 5. Project Registration Page

SANEDI Administrators Functions

       Figure 12. Project Assignment Page

Additional Functions

  Figure 15. Technology List Page