Section 12L of the Income Tax Act (1962) on the allowance For Energy Efficiency Savings

Transcription

1 Section 12L of the Income Tax Act (1962) on the allowance For Energy Efficiency Savings Eskom and Capital City Business Chamber, Energy Efficiency Conference and Exhibition: Reducing operating costs by optimising energy efficiency. Karel Steyn Snr. Consultant: Energy Performance Verification April 14 th, /11/2010 1

2 Executive Summary and Agenda Section 12L Regulations enacted on 9 December 2013 Preamble: Energy Efficiency promoted to safeguard continued energy supply and combat adverse effects on climate EE considered a guaranteed method to utilising energy efficiently, with A Carbon Tax to mitigate GHG emissions with some of this revenue being utilised to further efficient use of energy To encourage the efficient use of energy! Content: 1. Definitions 2. Procedure for claiming allowance 3. Responsibilities of SANEDI 4. Content of Certificate 5. Baseline Calculations 6. Limitations of allowance 7. Concurrent benefits 8. Short title and commencement 9. Some Explanations

3 NOTE: INCOME TAX ACT, 1962 Regulations in terms of Section 12L of the income tax act, 1962, on the allowance for energy efficiency savings. These Regulations may have unintended legal, financial and application consequences due to differing interpretations depending on the user. National Treasury and SARS already published interpretation notes for public comments which should be finalised and issued soon.

4 Agenda 1. Definitions 2. Procedure for claiming allowance 3. Responsibilities of SANEDI 4. Content of Certificate 5. Baseline Calculations 6. Limitations of allowance 7. Concurrent benefits 8. Short title and commencement 4

5 1. Definitions: The Most Important Definitions: baseline means baseline as defined in the standard; captive power plant means where generation of energy takes place for the purposes of the use of tat energy solely by the person generating that energy; certificate means an energy efficiency certificate contemplated in section 12L(3) of the Income Tax Act that is issued by SANEDI, comprising the content as set out in regulation 4; energy efficiency means energy efficiency as defined in the standard; energy efficiency savings means the difference between the actual amount of energy used in the carrying out of an activity or trade, in a specific period and the amount of energy that would have been used in the carrying out of the same activity or trade during the same period under the same conditions if the energy savings measure was not implemented; measurement and verification means measurement and verification as defined in the standard; measurement and verification body means a body that is accredited but the South African National Accreditation System in terms of section ; measurement and verification professional means a natural person who performs measurement and verification of energy efficiency savings under the auspices of a measurement and verification body;

6 1. Definitions (cont ): The Most Important Definitions (cont ): report means a measurement and verification report that (a) Contains a computation of energy efficiency savings in respect of a person for a year of an assessment; and (b) Is compiled by a measurement and verification professional in accordance with the criteria and methodology contained in the standard; reporting period energy use means reporting period energy use as defined in the standard standard means the South African National Standard (SANS 50010, Measurement and Verification of Energy Savings), issued by the SABS in terms of the Standards Act, 2008 (Act No. 8 of 2008) Definitions not included (due to a lack of space & time): -Regulations, -accreditation number, -allowance, -certificate number, -Income Tax Act, -National Energy Act -SANEDI.

7 Agenda 1. Definitions 2. Procedure for claiming allowance 3. Responsibilities of SANEDI 4. Content of Certificate 5. Baseline Calculations 6. Limitations of allowance 7. Concurrent benefits 8. Short title and commencement 7

8 2. Procedure for Claiming Allowance: A person that claims the allowance must, in respect of each year of assessment for which the allowance is claimed (register, appoint, submit, implement, submit, obtain certificate)

9 2. Procedure for Claiming Allowance: A person that claims the allowance must, in respect of each year of assessment for which the allowance is claimed (register, appoint, submit, implement, submit, obtain certificate)

10 2. Procedure for Claiming Allowance: A person that claims the allowance must, in respect of each year of assessment for which the allowance is claimed (register, appoint, submit, implement, submit, obtain certificate)

11 2. Procedure for Claiming Allowance: A person that claims the allowance must, in respect of each year of assessment for which the allowance is claimed (register, appoint, submit, implement, submit, obtain certificate)

12 2. Procedure for Claiming Allowance: A person that claims the allowance must, in respect of each year of assessment for which the allowance is claimed (register, appoint, submit, implement, submit, obtain certificate)

13 Agenda 1. Definitions 2. Procedure for claiming allowance 3. Responsibilities of SANEDI 4. Content of Certificate 5. Baseline Calculations 6. Limitations of allowance 7. Concurrent benefits 8. Short title and commencement 13

14 3. Responsibilities of SANEDI: 1. Appoint suitably qualified persons to consider reports submitted by a person claiming the allowance 2. Consider reports and if satisfied that the information contained in a report- a) Complies to the standard; b) Is an accurate reflection of the energy efficiency savings of the person claiming the allowance in respect of the year for which the allowance is claimed; and c) Complies with these Regulations, SANEDI must issue a certificate containing the information set out in regulation 4 to the person claiming the allowance 3. May investigate or cause to investigate any energy efficiency savings of a person contained in a report to be satisfied that the information contained in the report is an accurate reflection of the energy efficiency savings of the person submitting the report. 4. SANEDI must a) Keep and maintain all reports submitted for consideration; b) Create and maintain a database of all certificates issued by SANEDI in accordance with these Regulations; and c) At all times provide the minister of Finance and the Commissioner for the SARS with ready access to i) Reports mentioned in a) above; and ii) Database mentioned in b) above.

15 Agenda 1. Definitions 2. Procedure for claiming allowance 3. Responsibilities of SANEDI 4. Content of Certificate 5. Baseline Calculations 6. Limitations of allowance 7. Concurrent benefits 8. Short title and commencement 15

16 4. Content of Certificate The Certificate contemplated in regulation 3(2) must contain a) The baseline for the year of assessment for which the allowance is claimed derived and adjusted in accordance with regulation 5 and determined in accordance with the standard b) The reporting period energy use at the end of the year of assessment for which the allowance is claimed in accordance with the standard c) i) The annual energy efficiency savings expressed in kilowatt hours or the equivalent kilowatt hours for the year of assessment for which the allowance is claimed, determined in accordance with the standard; and d) ii) In case of a captive power plant, the difference between the kilowatt hours equivalent of energy input and the kilowatt hours equivalent of energy output during the year of assessment in accordance with the standard; e) Initials and Surname of the measurement and verification professional who compiled the report; f) Name and accreditation number of the measurement and verification body under whose auspices the measurement and verification professional compiled the report; g) Name and tax registration number of the person to whom the certificate is issued; h) Date on which the certificate is issued; and i) Certificate number

17 Agenda 1. Definitions 2. Procedure for claiming allowance 3. Responsibilities of SANEDI 4. Content of Certificate 5. Baseline Calculations 6. Limitations of allowance 7. Concurrent benefits 8. Short title and commencement 17

18 5. Baseline Calculations 1) For the purpose of this regulation green fields project means a project that represents a wholly new project which does not utilise any assets other than wholly new and unused assets. 2) The baseline a) For the first year of assessment for which the allowance is claimed must i. In the case of greenfields project, be constructed from comparable data in the relevant sector; or ii. In any other case, be derived from data gathered during the year of assessment preceding the first year of assessment for which the allowance is claimed; and b) Must be adjusted for every year of assessment for which the allowance is claimed i. In accordance to the methodology in the standard; and ii. By taking into account the reporting period energy use at the end of the immediately preceding year of assessment for which the allowance was claimed to compute the baseline for the subsequent year of assessment for which the allowance is claimed.

19 Agenda 1. Definitions 2. Procedure for claiming allowance 3. Responsibilities of SANEDI 4. Content of Certificate 5. Baseline Calculations 6. Limitations of allowance 7. Concurrent benefits 8. Short title and commencement 19

20 6. Limitations of Allowance 1) 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 source which is a co-product, by-product, waste product or residual product of an underlying industrial process; Energy conversion efficiency means the difference between the useful heat and equivalent kilowatt hours of energy output and the equivalent kilowatt hours of input energy expressed as a percentage; Renewable source means a) Biomass; b) Geothermal; c) Ocean currents; d) Solar; e) Tidal waves; or f) Wind; 1) A person may not receive the allowance in respect of energy generated from renewable sources other than energy generated from combined heat and power. 2) A person generating energy through a captive power plant may not receive the allowance unless the energy conversion efficiency of the plant is greater than 35 percent Also see Regulation 7 for additional limitations!

21 Agenda 1. Definitions 2. Procedure for claiming allowance 3. Responsibilities of SANEDI 4. Content of Certificate 5. Baseline Calculations 6. Limitations of allowance 7. Concurrent benefits 8. Short title and commencement 21

22 7. Concurrent Benefits For the purpose of section 12L(4) for the Income Tax Act any credit, allowances, grant, cost recovery agreement or other similar benefit granted by or through a) Any sphere of government; b) Any public entity that is listed in Schedule 2 or 3 to the Public Finance Management Act, 1999 (Act No. 1 of 1999); and c) Any power purchase agreement as defined in Electricity Regulations on New Generation Capacity made by the Minister of Energy under section 35 (4) of the Electricity Regulation Act, 2006 (Act No. 4 of 2006) published by Government Notice 721 of 5 August 2009 in respect of the IPP bid programme as defined in those regulations, for any energy efficiency savings or the sale and purchase of electricity constitutes a concurrent benefit.

23 7. Concurrent Benefits For the purpose of section 12L(4) for the Income Tax Act any credit, allowances, grant, cost recovery agreement or other similar benefit granted by or through a) Any sphere of government; b) Any public entity that is listed in Schedule 2 or 3 to the Public Finance Management Act, 1999 (Act No. 1 of 1999); and c) Any power purchase agreement as defined in Electricity Regulations on New Generation Capacity made by the Minister of Energy under section 35 (4) of the Electricity Regulation Act, 2006 (Act No. 4 of 2006) published by Government Notice 721 of 5 August 2009 in respect of the IPP bid programme as defined in those regulations, for any energy efficiency savings or the sale and purchase of electricity constitutes a concurrent benefit. X

24 Agenda 1. Definitions 2. Procedure for claiming allowance 3. Responsibilities of SANEDI 4. Content of Certificate 5. Baseline Calculations 6. Limitations of allowance 7. Concurrent benefits 8. Short title and commencement 24

25 8. Short Title and Commencement These regulations are called the Regulations in terms of the section 12L of the Income Tax Act, 1962, on the allowance for energy efficiency savings and Originally came into operation on: 1 November 2013 (R0.45 per kwh or kwh equivalent of energy efficiency savings for 12 consecutive months) With amendments effective: 1 April 2015 (R0.95 per kwh or kwh equivalent of energy efficiency savings for 12 consecutive months) AND AVAILABLE UNTIL 2020 (Allowance amounts do not appear in the Regulations but in the Tax Act!)

26 Agenda 9. Some Explanations 26

27 12 Consecutive Months = Person Financial year = 12 Consecutive Months Energy savings = baseline period energy use - assessment period energy use ± adjustments Adjusted baseline Energy use Baseline period energy Energy Energy savings savings or or avoided avoided energy energy use use Pre-implementation Baseline period ESM implementation Assessment period energy Post-implementation Assessment period Sep Oct Nov Dec Jan Feb Mar April May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May 12 Consecutive Months same as Financial Year M&V Performance Report

28 12 Consecutive Months =Across Person Financial year = 12 Consecutive Months Energy savings = baseline period energy use - assessment period energy use ± adjustments Adjusted baseline Energy use Baseline period energy Energy Energy savings savings or or avoided avoided energy energy use use Pre-implementation Baseline period ESM implementation Assessment period energy Post-implementation Assessment period Sep Oct Nov Dec Jan Feb Mar April May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May M&V Performance Report M&V Performance Report 12 Consecutive Months across Financial Year

29 12 Consecutive Months = Person Financial year = 12 Consecutive Months =Across Person Financial year = 12 Consecutive Months Energy savings = baseline period energy use - assessment period energy use ± adjustments Adjusted baseline Energy use Baseline period energy Energy Energy savings savings or or avoided avoided energy energy use use Pre-implementation Baseline period ESM implementation Assessment period energy Post-implementation Assessment period Sep Oct Nov Dec Jan Feb Mar April May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Sep Oct Nov Dec Jan Feb Mar April May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May M&V Performance Report M&V Performance Report M&V Performance Report

30 Project (M&V) Boundaries Multiple projects in same or different 12 month periods Motors + VSDs Retrofit Isolation Boundary Heating Furnace Packing Plant Facility Project or projects combined in single 12 month period Whole Facility Measurement Boundary

31 Allowance Calculations Provided for members to use by the: Date: 13-Apr-15 [Note comments in Cells D11 and K8] Energy Source: Diesel Energy price: R Energy Saved: litres (Kindly note the disclaimer below) Energy Content: 11 kwh/litre Energy Savings: kwh Average Cost: R 0.00 Savings/Profit Increase:¹ R Total Section 12L Tax Allowance:² R Taxable Income(Profit less Allowance): -R % Company Tax payable: -R Nett after Tax profit: R After Tax Benefit:³ R Total additional profit: R Total 12L Allowance: R Total Tax payable: -R Total Benefit (due to EE implementation):⁴ R Total benefit due to 12L:⁵ R or: R 0.27 ¹ This is an increase in the company s taxable income, which brings about more tax payable. or: /litre Reef & Whole sale price (may differ between retailers) /kwh /kwh 26.6 c/kwh ² The amount to be deductible from the Savings/Profit, due to it being a tax allowance for the company implementing energy efficiency with savings and making ³ This amount is not really a true reflection of a benefit due to it being a net deduction from profit a calculation only for tax purposes. ⁴ The amount is physically more received in the form of profit from which tax payable is due, but gets added to the tax savings due to the 12L allowance. ⁵ The tax savings. Note that tax rates may differ depending the type of business. Section 12L Calculations Corporates are currently taxed at 28% (other rates are applicable to other entities). Using the 95c/kWh allowance in an example:-

32 Detailed information available from the SANEDI website at: home Thank-you!