Jaltech has launched its latest alternative investment which focuses at providing South African investors with exposure to the rapidly growing solar sector in South Africa. The investment combines the attractive long term, lower risk nature of solar investments with the addition of a large upfront tax benefit.
The investment offers investors exposure to returns generated from funding solutions offered to solar providers who are supplying commercial and industrial businesses with solar energy. The funding solutions enable these businesses to purchase reliable electricity at a competitive rate which is anticipated to be lower than Eskom over the long term.
The investment not only aims to generate a significant annual return to investors, but similar to Section 12J investments, Jaltech’s Tax-Deductible Solar Investment allows investors, through Section 12B of the Income Tax Act, the ability to claim a tax deduction on their investment amount.
The key difference between this investment and Jaltech’s past Section 12J investments is that investors are entitled to claim an income tax deduction of 125% of the investment value versus a 100% deduction when investing in Section 12J investments.
Section 12B of the Income Tax Act provides that where a taxpayer (company, individual or trust) invests in/acquires solar equipment with the intention of generating an income, the taxpayer can claim a tax deduction of 125% of the investment amount.
For example, if an individual taxpayer, earning income which falls within the highest tax bracket, invests R1 million in Jaltech’s Tax-Deductible Solar Investment, the investor will be able to reduce his/her taxable income by R1 250 000. (R1 million x 125%)
The tax deduction translates into a tax saving/refund of R562 500 which ultimately de-risks the investor by 56% in year one.
Any company, individual or trust looking to offset an income tax or capital gains tax liability.
Investors will only be entitled to claim a tax deduction, in the year of investment, if the solar project/s are producing electricity within the financial year of investment. Therefore, there is a risk to an investor that he/she invests and the fund manager fails to invest the necessary capital.
Given the deployment risk (i.e the solar assets need to be generating electricity within the financial year) taxpayers who are looking to take advantage of this opportunity, would need to make an investment timeously as the fund manager would need time to deploy the capital.
In conclusion, Jaltech’s Tax Deductible Solar Investment presents an opportunity for South African taxpayers to benefit from the current energy supply crisis while gaining exposure to a reliable asset class that offers predictable long-term returns. The investment also provides a way for investors to significantly reduce their tax liability through a 125% income tax deduction on their investment amount.
Jaltech has taken steps, over the past eight months, to mitigate deployment risk by building up a substantial pipeline of over R150 million in investment opportunities and will be limiting its initial capital raise to R100 million.