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South Africa has the good fortune of possessing many renewable
energy sources that remain largely untapped, wind and solar energy
being amongst them. However, despite abundant renewable
energy sources, developing sustainable markets for renewable energy
technologies presents complex challenges as financial obstacles
often hinder advancement.
Machinery and plant relating to electricity generation from
wind, sunlight, gravitational water and from biomass (that
comprises of organic wastes, landfill or plants) is depreciable.
These assets are depreciable over a three-year period at a 50:30:20
per cent rate. The purpose of this accelerated depreciation regime
is to stimulate investment in these assets, thereby encouraging
investment in renewable energy projects. The lower the cost of
electricity generation, the higher will be the profit margin for
taxpayers involved in electricity generation from renewable
energy.
One of the initial questions to resolve is whether the plant and
machinery becomes fixed to the land in such a manner that it loses
its separate identity and becomes an integral part of the land.
This is usually decided on the basis of a 'facts and
circumstances' test having regard to the nature of the
'thing' (for example, wind turbine, gas turbine, etc),
the manner of its annexation to the land and the intention of the
owner of the thing at the time of its annexation to the land.
Having regard to the transportable character of the wind tower, the
common practice to transport plant and machinery of this nature,
the economic incentive on the project company to remove it, the
relatively slight degree of attachment to the ground (relative when
compared to say a gas turbine) and the ease with which detachment
can occur, it is usually concluded that the wind tower should be
regarded as movable property. What then of the foundation to which
the wind tower is fixed?
Assuming that the structure retains its separate identity the
secondary question is whether all the elements of that structure
qualify for the accelerated depreciation regime. Machinery and
plant (such as windmills and solar energy projects) dedicated to
energy renewal often require ancillary supporting structures that
can be quite costly in relation to the associated plant and
machinery. For instance, a wind tower rests on a supporting
structure such as a reinforced concrete foundation that is wider
than the tower. The foundation is usually held in place by
its own weight and the weight of the wind tower sitting on top of
it. The foundation provides a solid base for the unit which
is needed for its proper operation. The tower is mounted on a
steel frame that is bolted into the foundation. The anchoring is
necessary to hold the tower in place to prevent misalignment caused
by vibration. The use of bolts makes it a relatively simple
logistic process to place or remove the tower which is lifted or
lowered into position by crane. As a technical matter, only the
plant and machinery (such as, in the case of a wind tower, the
rotor blades, the tower itself, and the generator) is depreciable
– not the supporting structures.
The proposed amendment contained in the recently released
Taxation Laws Amendment Bill 2012 states that supporting structures
associated with machinery and plant that are dedicated to energy
renewal will be depreciable over a three-year period at the
accelerated 50:30:20% rate. More specifically, the supporting
structure must be mounted or fixed to the machinery or plant and
must be integrated with the machinery or plant. The useful life of
that structure must also be limited to the useful life of that
machinery or plant. According to the Explanatory Memorandum, these
requirements match the requirements for supporting structures that
are associated with other forms of depreciable machinery or
plant.
This ought to prove to be a valuable concession to taxpayers
that generate electricity from renewable energy projects.
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On 23 April 2010 Tanzania's Parliament passed The Mining Act 2010 (the Act). The Act is a composite of a document presented to Parliament (the Initial Reading), together with a schedule of amendments (the Amendments).
