Section 12B of the Income Tax Act allows for the deduction of plant and machinery used in the generation of electricity from renewable resources on a 50/30/20 basis. A contentious issue that arises under similar accelerated allowance provisions is whether supporting structures in fact form part of or can be regarded as plant or machinery qualifying for deduction. Case law on this aspect is not always necessarily helpful.

For renewable energy structures the problem is particularly acute as they are capital intensive projects with most structures affixed to the ground not always capable of being removed. It is welcomed that Treasury will extend the 50/30/20 allowance under section 12B of the Income Tax Act to supporting structures to provide clarity to Independent Power Producers bidding to the Department of Energy. However, until such time that the legislation is promulgated it appears that the Advance Tax Ruling process must be favoured for current projects to obtain certainty on the tax treatment on supporting structures.

Written by Ruaan van Eeden, Tax Director, Cliffe Dekker Hofmeyr