Jaltech’s Tax Deductible Solar Investment
Jaltech is offering taxpayers the opportunity to invest in its fourth Section 12B solar investment and receive up to 90% of their investment back within the first year through SARS refunds and cash inflows.
Jaltech’s Section 12B Solar Investment IV combines the predictable return nature of the solar sector with the tax benefit available to taxpayers through the government’s renewable energy tax incentive.
TRACK RECORD
With a track record of superior performance, Jaltech leads the section 12B investment market by having:
- raised and committed over R550 million across 180 solar projects
- achieved an annual deployment percentage of 93% of investors’ capital
- invested into solar projects which are on track to generate double-digit IRRs for investors
SECTOR FOCUS / MANDATE
Jaltech’s Section 12B Solar Investment IV will be focused on providing long-term solar finance to credit-worthy commercial and industrial energy consumers through power purchasing agreements.
90% RETURNED WITHIN THE FIRST YEAR
One of the objectives of this investment is to de-risk investors by approximately 90% of their investment amount during the first year of investment. This is achieved through the SARS refund/tax savings associated with the investment and the first year’s income generated.
By way of explanation, if an investor (in the highest tax bracket) invests R1 million, the investor will be entitled to a SARS refund/tax saving of R562 000, this is because the investment is 125% tax deductible.
To enhance the tax deductibility of the investment, Jaltech aims to introduce debt funding. Using the above example, Jaltech will look to raise R500 000 of debt on behalf of the investor.
The benefit from an investor’s perspective is that the debt funding allows Jaltech to acquire additional solar equipment on the investor’s behalf, thereby permitting the investor to claim an additional tax benefit within the same year.
As a result of the R500 000 debt, the same investor will be entitled to a second SARS refund/tax saving of approx. R290 000. By adding the first tax benefit of R562 000, the second tax benefit of R290 000 and the first year’s returns, the investor will receive approx. R900 000 during the first year of investment thereby de-risking the investor by approx. 90%.
Investors must be mindful that where debt is raised within the investment, investors will have limited recourse exposure based on their pro-rata share in the partnership. Jaltech will look to reduce investors’ exposure by:
- limiting the debt levels in the investment to a ratio of 1:2. In other words, for every Rand of debt, the investment will hold two Rand of equity;
- securing debt funding where the debt providers will only have recourse against existing solar assets;
INVESTMENT EXPLAINED
For an in-depth look into the investment, watch the video below where Alec Hogg engages in a discussion with Jonty Sacks, who provides insights into Jaltech’s Section 12B solar investment.
Investment highlights
Minimum investment
R500 000
Tax deduction of up to 187%
Annual income distribution to investors for 10 years
Exit through distributions
Investors are de-risked up to 90% in year one
21% IRR Post tax, net off fees + tax benefit
Limited capital raise
Risk
Moderate
CASH-INFLOWS
Jaltech’s Section 12B Solar Investment IV aims to generate a consistent annual yield paid to the investor over a period of 10 years.
Below is an example of the SARS refunds and cash-inflows over the period of the investment to an investor (in the highest tax bracket) who invests R1 million.
| Milestones | Cash-inflows to the investor | |
| Year 1 – SARS refund | R562 500 | |
| Year 1 – Pre-tax income (after fees) | R43 203 | |
| Year 1 – SARS refund (debt funding) | R289 773 – Investor de-risked | |
| Year 2 – Pre-tax income (after fees) | R50 811 | |
| Year 3 – Pre-tax income (after fees) | R58 827 | |
| Year 4 – Pre-tax income (after fees) | R67 268 | |
| Year 5 – Pre-tax income (after fees) | R76 155 | |
| Year 6 – Pre-tax income (after fees) | R85 504 | |
| Year 7 – Pre-tax income (after fees) | R95 336 | |
| Year 8 – Pre-tax income (after fees) | R105 669 | |
| Year 9 – Pre-tax income (after fees) | R116 522 | |
| Year 10 – Pre-tax income (after fees) | R1 347 156 | |
| Total pre-tax income + tax benefit (net of fees) | R2 898 723 – 2.9X investment value | |
| Total post-tax income + tax benefit (net of fees) | R 1 746 002 | |
| Pre-tax IRR + tax benefit (net of fees) | 42% | |
| Post-tax IRR + tax benefit (net of fees) | 21% | |
Assumptions:
1) The investor is in the highest tax bracket
2) The Prime Rate remains unchanged
3) Future cashflows are sold at year 10
4) Debt is raised at a ratio of 1:2
RISKS
As with any investment, there are numerous risks investors need to consider. With this investment, we believe that there are four main risks, namely:
Credit Risk
The performance of this investment is dependent on the energy consumer’s ability to make regular payments towards their energy consumption. To mitigate this risk, Jaltech will be undertaking an in-depth due diligence and credit check on each energy consumer or project owner as well as diversify its investment across multiple projects.
Deployment Risk
Investors will only be entitled to claim a tax deduction, in the year of investment, if the solar project/s are producing electricity. In this regard, Jaltech will limit its capital raise to projects which can be executed within the year of investment.
Debt Financing Risk
The investment will look to introduce debt at a ratio of 1:2. As a result (and by way of example), should all the underlying investments be repossessed by the debt provider, the investor will stand to lose his/her original investment value and the investor may be recouped a portion of the tax savings. Jaltech has mitigated this risk by limiting the debt facility to a maximum ratio of 1:2.
Section 12B Risk
The investors’ liability within the investment is limited to 125% of their investment value, the remaining liability is held by the General Partner in the partnership. The reason why the investors’ liability is 125% is that investors must be at risk for 125% of their investment value to claim a 125% tax deduction. Jaltech has introduced various risk mitigations to reduce investors’ risks.
Fees
| Fees | ||
| Management fee | 2.25% p.a. | |
| Performance fee | 20% above a hurdle of the investment amount, calculated and charged annually with a high-water mark (with catch-up) – see explanation. | |
Jaltech earns a performance fee annually on returns generated above the investment amount divided by the total average term of the power purchasing agreements (PPA) signed with the end customers.
As an example, if the total average PPA term is 10 years, and an investor invests R100 the annual hurdle would be R10. Accordingly, if Jaltech returns R12 in year one, Jaltech would charge a fee of 20% on the R2 (R12 less R10). If in year two, Jaltech returns R5 no performance fee would be earned. For Jaltech to earn a performance fee in year three, Jaltech would need to return more than R15.
How to invest?
By simply completing the investment form, Jaltech’s dedicated team will take you through the investment process.
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Disclaimer: The contents of this document do not constitute and should not be construed as an offer to subscribe for shares or investment, tax, legal, accounting and/or other advice. For advice on these matters consult your preferred investment, tax, legal, accounting and/or other advisers about any information contained in this document. All mentioned returns in this document are estimates at current tax rates and interest rates. Past performance is not an indication of future performance.
