what is section 12B?
During the 2023 Budget Speech, the Minister of Finance expanded the Section 12B tax incentive to enable taxpayers to claim up to a 125% up-front tax deduction for all renewable energy projects with no thresholds on generation capacity. The expanded deduction is only available for projects brought into use for the first time between 1 March 2023 and 28 February 2025.
Previously, the use of Section 12B was limited to corporate and institutional renewables investors. Westbrooke REAL (the Strategy), changes this paradigm by enabling tax payers to use this deduction against their taxable income calculations and also enhancing the tax deduction to up to 250%* of their cash invested.
Westbrooke is South Africa’s leader in tax enhanced investing. Previously South Africa’s largest Section 12J manager, with over R3 billion in assets under management, Westbrooke has successfully returned in excess of R700 million of tax enhanced investment capital to clients (with another R800 million set to be successfully returned to clients in April 2023), at double-digit annualised returns.
Westbrooke REAL (the Strategy) is a unique opportunity which aims to provide tax-payers access to a multi-partner portfolio of solar photo-voltaic (PV) projects underpinned by high-quality end-users and contractual cash flows, enhanced by the Section 12B tax deduction.
A combination of attractive project returns, the Section 12B tax deduction and a conservative level of gearing at the project level (for which clients will be required to provide a limited-recourse guarantee, limited to their pro-rata portion of the gearing) allows the Strategy to target returning all cash commited within two years, materially de-risking the offering.
Thereafter, clients benefit from long-term (10 – 15 year) de-risked cash flows from the solar PV portfolio, with an anticipated IRR of >40% p.a. and an annual yield of an initial 7% p.a. in year 1, growing to above 25% after year 10 (net of investment costs and Westbrooke fees).
Please note that the offering is not available to members of the public and that Westbrooke Alternative Asset Management does not provide tax advice.
key strategy highlights
Up to 250%* tax deductible based on cash invested in the year that the Solar PV assets are brought into use for the first time
Partnering with established and reputable operators who are materially invested alongside us
Target to return all cash committed within 2 years**
Investment in green energy assists South Africa’s energy crisis
Target de-risked cash yield on Cash Invested of:
- First 5 years – average approximately 7% per annum
- Years 6 to 10 – average approximately 12% per annum
- Thereafter – average approximately 25% per annum
The Strategy provides flexibility to clients by only requiring cash to be drawn at the time of the project commissioning
Investment into a diverse set of commercial and industrial (C&I) solar PV projects which are underpinned by contractual cash flows backed by quality end-users
Westbrooke has developed a high-quality pipeline of executable solar PV projects
* This applies to solar PV investments brought into use for the first time post-March 1st 2023. Although not the intention, the Strategy can invest in existing projects which meet the Strategy’s mandate which may have been brought into use for the first time pre-March 1st 2023. These projects would only qualify for a tax deduction up to 200% based on the cash committed. For more detail on how the enhanced Section 12B tax deduction works, please refer to the table below.
**Assumes the tax-payer is an individual/trust that pays tax at the maximum marginal tax rate of 45%.
illustrative example based on R1.2m cash committed
Amount | Notes | |
Cash Invested | R1.2m | Drawn down in increments over the 2024 tax year |
Gearing at a project level | R0.8m - R1.2m | Will vary depending on the specific underlying project considerations |
Total Investment | R2m - R2.4m | Aggregate of Cash Invested and Gearing |
Section 12B deduction @ 125% of Total Investment | R2.5m -R3m | Assuming all Cash Invested is drawn |
Percentage Section 12B deduction based on Cash Invested | 200% - 250% | Targeted Gearing at an underlying project level is 40% but will vary depending on the specific underlying project considerations |