Generators, inverters, UPS units, solar panels and the diesel to run them are a recurring cost for businesses that stay open during load-shedding. Most of that spending can be claimed against tax. How you claim it depends on what you bought. If you claim a cost the wrong way, you either overclaim and expose yourself in a verification, or you claim less than you're entitled to.

Running costs and equipment are claimed differently

SARS treats two categories of backup-power spending differently:

  • Running costs such as diesel, petrol, gas, servicing and replacement batteries as consumables are generally deductible in full in the year you incur them, provided they're incurred in the production of income.
  • Equipment such as the generator, the inverter or the solar array is a capital asset. You don't deduct the full cost in year one. You claim it over time through wear-and-tear, a capital allowance spread across the asset's useful life.

A R150,000 generator cannot be written off in full against this year's profit. It is capital, and you claim it through wear-and-tear over its useful life. The diesel you put into it is claimed in the year you buy it. A return that expenses the generator in full is likely to be corrected if SARS reviews it.

How the timing affects your tax bill

You claim the generator's full cost eventually in either case, but the timing changes when you get the tax relief. A running cost reduces this year's taxable profit in full. A capital asset spreads its deduction across several years, so the relief arrives in instalments. Knowing which costs are which lets you plan your cash and your tax. It also means you'll know in advance that a R150,000 outlay will reduce this year's tax by only part of its cost.

Load-shedding costs you can deduct

An expense is deductible if it's incurred in the production of income, which means it is a cost of running your business. For load-shedding, that can include:

  • Diesel and fuel for the generator, to the extent of business use.
  • Servicing, maintenance and repairs on your backup-power equipment.
  • Wear-and-tear allowances on the generator, inverter or solar system, spread over its useful life.
  • Finance costs (the interest) if you financed the equipment.
  • The input VAT on diesel and on the equipment, if you're VAT-registered and hold valid tax invoices.
  • A reasonable business portion where equipment is shared with a home or personal use, supported by a written record of how you worked it out.
Wear-and-tear
How you claim the generator or inverter itself, spread over its useful life

A print shop during a long period of load-shedding

The shop spends R135,000 on an inverter-and-battery system. It also spends R9,000 on diesel over the year to run an older backup generator on the Stage 6 days. The R9,000 of diesel is deducted in full this year as a running cost. The R135,000 system is capital and is claimed through wear-and-tear allowances across its useful life, so only a portion reduces this year's profit. If the owner had expensed the full R135,000 this year, the return would have been open to a SARS query.

Solar panels and inverters

A diesel generator and a solar-plus-battery system are both capital assets. They can attract different capital allowances and useful lives. Renewable-energy installations have at times carried enhanced allowances that speed up the write-off. These rules change with Budgets, so the treatment that applied to another business two years ago may no longer apply. The equipment is always capital and claimed over time. Check the allowance rate for your installation before you commit to a large purchase.

Records to keep for backup-power claims

SARS can ask you to prove fuel costs if it verifies your return. Keep the invoices and slips. Where equipment is partly used for personal purposes, keep a written basis for the business share. SARS can disallow cash diesel purchases that have no record. For VAT, you can only claim input tax if you hold a valid tax invoice. For the equipment, keep the purchase invoice and the finance agreement, because they support your wear-and-tear claim for years. Record fuel in your books in the same way as every other cost.

Budgeting for load-shedding costs

Diesel costs vary from month to month, and a period of high-stage load-shedding can take a large unbudgeted amount out of a month's cash. These steps help:

  1. Add a backup-power line to your monthly budget, based on the most expensive recent months.
  2. Record backup-power costs as a separate line in your books so that you can see what load-shedding costs you.
  3. If you finance equipment, match the repayment term to the asset's useful life, so that you finish paying before the equipment wears out.
  4. Keep a cash reserve for fuel spikes, so that a costly month doesn't force you into expensive short-term borrowing.
  5. Compare the cost of a longer-term fix, such as solar or larger inverters, with the cost of buying diesel. Include the wear-and-tear relief on the capital spend in the comparison.

Summary

You can recover most backup-power costs through the tax system if you separate running costs from capital and keep records for both. Fuel and servicing come off this year's profit in full. The generator, inverter or solar system comes off over its useful life. If you're unsure how to claim a generator, or you want help structuring your backup-power spending for tax, book a discovery call. We'll check that you claim everything you're entitled to and that each claim is supported.