Section 12B and the assessed loss (Riverbend Solar, part 7)

Section 12B lets a solar plant above 1 MW deduct the cost of its qualifying assets over three years: 50%, 30%, 20%. On Riverbend that is R283m, R170m, R113m.

In a standalone SPV, the loss that creates can't be used anywhere else. It is carried forward as an assessed loss, which peaks at R392m in year 3.

Then a rule that changes the timing. For years of assessment ending from 31 March 2023, an assessed loss can reduce taxable income by at most 80% (or R1m, if greater). So Riverbend pays cash tax from year 6 while still carrying R216m of loss: R0.4m that year.

Year 6, line by line:

EBITDA R130.546m, less interest R49.925m and that year's share of the loan fees R0.921m = profit R79.700mless the loss used, capped at 80% of that profit: R63.760mless the last of the construction-period interest and fees (s11A), deductible only from profit the loss leaves: R14.371m= taxable R1.569m, tax at 27%: R0.423m

The loss is used up by year 9, and the tax line steps up: R5.1m, then R8.4m, then R29.7m. That step lands while the loan is still being repaid, and sculpted debt service has to fit around it.

Over the project life, the effective tax rate is 19.8% against the 27% headline.

Tax is also circular. Interest is deductible, so tax depends on the debt; tax reduces CFADS, and CFADS sizes the debt. The engine solves the loop each run.

Next: what the bank does to the loan when things go wrong.

Riverbend Solar is an illustrative case study: a fictional deal with no real counterparty.

All 10 parts of Riverbend Solar

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