Six tips for cashing in on tax breaks for energy savers

It’s official: if you’ve invested money on improving energy efficiency in your business over the past 12 months – or you’re planning to do so – you could get a tax break of up to 55% on your energy efficiency investment. Government recently passed a law to provide handsome tax incentives in an effort to encourage South Africans to become more energy efficient.

And since we know that most businesses pay around 30% too much for electricity, there’s a lot of room to save money, both from taking advantage of tax incentives, as well as simply lowering your electricity bill. But only if you know how.

In order to qualify for the maximum tax break of 55%, businesses are assessed out of ten points according to six main criteria. It can get a little tricky, so it’s best to call in experts who’re able to guide you in designing your energy efficiency project so you can get the maximum tax benefit.

1.   Innovation (1 point max.)

This criterion looks at how the processes of the company or building have been improved. If you can prove a 10% increase in energy efficiency, you qualify for the maximum one point. But that’s only if the baseline has been verified by a certified management verification professional (CMVP).

2.   Improvement of Energy Efficiency (2 point max.)

Here the technology, operations and equipment being used following the intervention is assessed according to just how much, for example, production time has been saved. You’ve got to be able to prove that your lights or conveyor belts are drawing less electricity, or perhaps that your production time has been reduced while still producing the same amount of product – or some other kind of innovation to earn the one point. 15% improvement gives you the maximum 2 points

3.   General business Linkages (Diversification and Global Competitiveness) (1 point max.)

This criterion assesses your company’s competitiveness regarding energy efficiency with similar companies in the rest of the world. To earn that one point, you’ll need to prove how your energy efficiency plan squares up with others in equivalent industries internationally.

4.   SMME Procurement (2 point max.)

“A company may qualify for the maximum two points, depending on how much of its energy efficiency services it procured from an SMME provider. 10% = 1 point; 15% = 2 points.

5.   Employment Creation (2 point max.)

Maximum points may be achieved if the business created one full-time job as a result of promoting energy efficiency. This includes roles like monitoring energy efficiency and reports on savings, as well as a energy manager. A part-time role gains one point.

6.   Training of Employees (2 point max.)

The final criterion is based on the company’s overall wage bill. Essentially, if the company spends the equivalent of 2% of its wage bill for the energy efficient project on training employees, it qualifies for one point. Spending more than 2% earns the maximum 2 points.

Overall, a company can claim tax back on up to 55% of its investment in energy efficiency if it earns between 8 and 10 points. Between 5 and 7 points means you qualify to apply for 35% tax back.

When spending a substantial amount of money on energy efficiency, it makes sense to ensure the intervention is properly designed, so as to meet certain standards in order to achieve maximum savings as well as points earned.

However, if you’ve already invested money over the past 12 months, you still qualify to apply for tax exemption and should contact an certified monitoring and verification professional (CMVP) to help you apply correctly.

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