Section 12B (ITA) – Deduction in respect of certain machinery, plant, implements, utensils and articles used in farming or production of renewable energy

12B. Deduction in respect of certain machinery, plant, implements, utensils and articles used in farming or production of renewable energy

(1) In respect of any –

(a) ……….

(b) ……….

(d) ……….

(e) ……….

(f) machinery, implement, utensil or article (other than livestock) which is owned by the taxpayer or acquired by the taxpayer as purchaser in terms of an agreement contemplated in paragraph (a) of the definition of ‘instalment credit agreement’ in section 1 of the Value-Added Tax Act and brought into use for the first time by that taxpayer and used by him or her in the carrying on of his or her farming operations, except any motor vehicle the sole or primary function of which is the conveyance of persons or any caravan or any aircraft (other than an aircraft used solely or mainly for the purpose of crop-spraying) or any office furniture or equipment;

(g) machinery, plant, implement, utensil or article owned by the taxpayer or acquired by the taxpayer as purchaser in terms of an agreement contemplated in paragraph (a) of the definition of ‘instalment credit agreement’ in section 1 of the Value-Added Tax Act and which was or is brought into use for the first time by the taxpayer for the purpose of his or her trade to be used for the production of bio-diesel or bio-ethanol,

(h) machinery, plant, implement, utensil or article owned by the taxpayer or acquired by the taxpayer as purchaser in terms of an agreement contemplated in paragraph (a) of the definition of ‘instalment credit agreement’ in section 1 of the Value-Added Tax Act and which was or is brought into use for the first time by that taxpayer for the purpose of his or her trade to be used by that taxpayer in the generation of electricity from –

(i) wind power;

(ii)

(aa) photovoltaic solar energy of more than 1 megawatt;

(bb) photovoltaic solar energy not exceeding 1 megawatt; or

(cc) concentrated solar energy;

[Subparagraph (ii) substituted by section 19 of Act 25 of 2015 effective on 1 January 2016]

(iii) hydropower to produce electricity of not more than 30 megawatts; or

[Subparagraph (iii) amended by section 16 of Act 34 of 2019]

(iv) biomass comprising organic wastes, landfill gas or plant material; or

(i) improvements (other than repairs) to-

(i) any machinery, plant, implement, utensil or article referred to in paragraph (f), (g) or (h); and

(ii) any foundation or supporting structure that is, in terms of the proviso to this subsection, deemed to be part of the machinery, plant, implement, utensil or article referred to in paragraph (h),

which is during the year of assessment used as contemplated in the relevant paragraph, a deduction calculated in terms of subsection (2) shall be allowed in respect of the year of assessment during which such machinery, plant, implement, utensil or article or any improvement (hereinafter referred to as an asset) is so brought into use and each of the two succeeding years of assessment, such succeeding years of assessment hereinafter in this section referred to as the second and third years, in chronological order.

: Provided that where any machinery, plant, implement, utensil, article or improvement for which a deduction is allowed under paragraph (h) is mounted on or affixed to any concrete or other foundation or supporting structure and-

(a) the foundation or supporting structure is designed for such machinery, plant, implement, utensil, article or improvement and constructed in such manner that it is or should be regarded as being integrated with the machinery, plant, implement, utensil, article or improvement;

(b) the useful life of the foundation or supporting structure is or will be limited to the useful life of the machinery, plant, implement, utensil, article or improvement mounted thereon or affixed thereto; and

the foundation or supporting structure shall be deemed to be a part of the machinery, plant, implement, utensil, article or improvement mounted thereon or affixed thereto

(2) The deduction contemplated in subsection (1) shall be calculated on the cost to the taxpayer of the asset and the rate of the allowance shall be-

[Words preceding paragraph (a) substituted by section 22 of Act 17 of 2017 effective on 18 December 2017]

(a) in the case of an asset other than an asset contemplated in paragraph (b)-

(i) in respect of the year of assessment during which the asset is so brought into use, 50 per cent of such cost;

(ii) in respect of the second year, 30 per cent of such cost; and

(iii) in respect of the third year, 20 per cent of such cost;

[Paragraph (a) substituted by section 19 of Act 25 of 2015 effective on 1 January 2016]

(b) in the case of an asset contemplated in subsection (1)(h)(ii)(bb), 100 per cent of such cost

[Paragraph (b) substituted by section 19 of Act 25 of 2015 effective on 1 January 2016]

[Paragraph (c) deleted by section 28 of Act 15 of 2016 effective on 1 January 2016, applies in respect of years of assessment commencing on or after that date]

(3) For purposes of this section the cost to a taxpayer of any asset acquired by that taxpayer shall be deemed to be the lesser of the actual cost to the taxpayer or the cost which a person would, if he or she had acquired the asset under a cash transaction concluded at arm’s length on the date which the transaction for the acquisition of the asset was in fact concluded, have incurred in respect of the direct cost of acquisition of the asset, including the direct cost of the installation or erection thereof.

[Subsection (3) substituted by section 19 of Act 31 of 2005 and section 22 of Act 17 of 2017 effective on 18 December 2017]

(4) No deduction shall be allowed under this section in respect of –

(a) any asset which has been let by the taxpayer under a lease other than an operating lease as defined in section 23A (1), unless –

(i) the lessee under such lease derives in the carrying on of his trade amounts constituting income for the purposes of this Act; and

(ii) the period for which the asset is let under such lease is at least 5 years or such shorter period as is shown by the taxpayer to be the useful life of the asset;

(b) ……….

(c) any asset brought into use by any company during any year of assessment if such asset was previously brought into use by any other company during such year and both such companies are managed, controlled or owned by substantially the same persons, and a deduction under this section was previously granted to such other company;

[Paragraph (c) amended by section 7 of Act 9 of 2005 and substituted by section 19 of Act 25 of 2015 effective on 8 January 2016]

(d) any asset which has been disposed of by the taxpayer during any previous year of assessment;

(e) ……….

(f) any asset in respect of which an allowance has been granted to the taxpayer under section 12E;

[Paragraph (f) added by section 7(b) of Act 9 of 2005, amended by section 19(g) of Act 31 of 2005 and substituted by section 15(1)(a) of Act 17 of 2023 effective on 1 March, 2023]

(g) any asset the ownership of which is retained by the taxpayer as a seller in terms of an agreement contemplated in paragraph (a) of the definition of “instalment credit agreement” in section 1 of the Value-Added Tax Act; or

[Paragraph (g) added by section 19(h) of Act 31 of 2005 and substituted by section 31(c) of Act 31 of 2013 and by section 15(1)(a) of Act 17 of 2023 effective on 1 March, 2023]

(h) any asset in respect of which a deduction has been allowed to the taxpayer under section 6C or 12BA.

[Paragraph (h) added by section 15(1)(b) of Act 17 of 2023 effective on 1 March, 2023]

(4A) ……….

(4B) Where any asset in respect of which any deduction is claimed in terms of this section was during any previous financial year brought into use for the first time by the taxpayer for the purposes of any trade carried on by such taxpayer, the receipts and accruals of which were not included in the income of such taxpayer during such year, any deduction which could have been allowed in terms of this section during such previous year or any subsequent year that such asset was used by such taxpayer shall for the purposes of this section be deemed to have been allowed during such previous year or years as if the receipts and accruals of such trade had been included in the income of such taxpayer.

(5) The deductions which may be allowed in terms of this section in respect of any asset shall not in the aggregate exceed the cost to the taxpayer of such asset.

(6) Where a lessor of any asset under a lease contemplated in subsection (4)(a) has within the period contemplated in subparagraph (ii) of that paragraph, reckoned from the commencement of the period for which the asset is let under that lease, disposed of the whole or a portion of that lessor’s interest in the lease or of his or her right to receive rent under the lease, there must be included in that lessor’s income for the year of assessment during which the disposal is made a sum equal to the aggregate of any deductions allowed to that lessor under this section, less a proportionate amount in respect of the expired portion of the lease or any portion of that interest or right which has not been disposed of by the lessor.

[Subsection (6) substituted by section 19 of Act 31 of 2005 and section 19 of Act 25 of 2015 effective on 8 January 2016]