‘Interest’ is deductible in terms of section 24J(2) of the Income Tax Act. The term ‘interest’ is defined to include any interest ‘or similar finance charges’. The meaning of ‘similar finance charges’ has been uncertain since the 2016 amendment replaced the broader expression ‘related finance charges’ with ‘similar finance charges’. Under the previous wording, the SCA held in CSARS v South African Custodial Services that various costs closely connected to obtaining finance, including guarantee, advisory, margin, commitment, legal and administration fees, qualified as ‘related finance charges’.
The SARS released Interpretation Note 142 on 12 December 2025 which provides that raising fees are not ‘similar finance charges’ to interest, and therefore not deductible in terms of section 24J(2) of the ITA.
In CSARS v Cornucopia Trust (7 September 2026) the SCA held that the purpose of the ‘related’ to ‘similar’ amendment is to circumvent the wide approach adopted in Custodial Services by excluding legal and financial advisory fees from the definition of ‘interest’. The Court further held that interest and raising fees are consideration for the extension of credit. In this case the taxpayer incurred raising fees directly proportionate to the amount of the loans, linked to the relevant facilities, and which was required as a precondition to drawdown. The taxpayer claimed portions of those fees as deductions under section 24J, which the SARS disallowed on the basis that the raising fees were not sufficiently similar to interest, a position consistent with SARS’ IN 142.
The majority of the SCA in Cornucopia Trust rejected the SARS' approach, holding that the character and function of the raising fees, not its label, is decisive. The raising fees were linked to the interest rate charged and determined according to the time value of money. Together with interest, the raising fees in this case were ‘payments to mitigate the risk of nonrepayment of the loan, in addition to compensation for the deprivation of the use of the money‘, qualifying as ‘similar finance charges’ deductible under section 24J.
The judgment confirms that raising fees which are inextricably linked to interest are ‘similar finance charges’ to interest and subsequently deductible in terms of section 24J. Importantly, whether such a link exists will depend on the terms of the relevant financing agreements.
