Authored by Nico Theron, Micke Swanepoel and Mpho Matane
There is currently a disparity in the interpretation of the scope of the term “similar finance charges” as contemplated in section 24J (1) of the Income Tax Act 58 of 1962 (“the Act”), in particular, whether a raising fee in respect of a loan constitutes similar finance charges.
On the one hand, the Cape Town Tax Court,[1] in January 2025 held that raising fees suffered by the taxpayer constitute similar finance charges as contemplated in section 24J. On the other hand, the South African Revenue Service (“SARS”), in December 2025, issued Interpretation Note 142[2] (“the SARS Note”) in which it concludes that raising fees are not similar finance charges.
Because of these differing interpretative approaches, uncertainty arises as to whether raising fees (and indeed comparable finance-related charges for that matter) fall within the meaning of “similar finance charges” for purposes of section 24J(1). This uncertainty has material implications for the timing and deductibility of such amounts, particularly in determining whether they should be treated as interest under section 24J or considered separately under the general deduction provisions of the Act.
SARS has taken the judgment of the Tax Court on appeal, obviously to try and get a higher court to agree with their interpretation as set out in the SARS Note. In the meantime (which could be quite some time), the question for taxpayers is obviously: what now? How must taxpayers treat these sorts of fees now that SARS issued a contradictory Note?
Option 1: Treat raising fees as similar finance charges?
The basis for this will obviously be the judgment handed down by the Tax Court.
For purposes of section 24J of the Act, the Court examined the meaning of the following words: “interest”, “including”, “or”, and “similar”. What stood out was the Court’s interpretation of the word “or”, between the term’s “interest” and “similar finance charges”, to mean that the two terms are alternatives to each other.[3] Further, that there should be a “relevant resemblance” to interest.[4]
The Court concluded that raising fees are paid for the arrangement of a loan, given that the loan would not exist but for the payment of those fees.[5] This stresses the closeness between the raising fees and the loans, and it is further indicative of the significant similarity between the raising fees and the loans.[6] Therefore, the raising fees are “interest or similar finance charges”.
Option 1 consequences
Tax Court judgments do not set a precedent, nor are they legally binding on other taxpayers or courts.
If a taxpayer adopts option 1, treats raising fees as similar finance charges and SARS subsequently succeeds in getting a higher court to rule in line with their interpretation, the expense will not be allowable. In such circumstances, SARS may disallow the previously deducted expense and recover the amounts, including any applicable penalties and interest, by issuing an additional assessment.
Given SARS issued a note saying they disagree with the judgment of the Tax Court, one can be fairly sure SARS will raise additional assessments to reverse such claims if found to have been claimed while their appeal is pending.
Option 2: Don’t treat raising fees as similar finance charges
A taxpayer may take a more prudent/conservative approach and elect to not treat raising fees as similar finance charges as per the SARS Note.
The SARS Note considers the interpretation of the phrase “similar finance charges” as set out in section 24J of the Act and illustrates the application thereof, in determining whether the associated fees with a financial arrangement fall within the ambit of that phrase. The analysis is undertaken from the borrower’s perspective, although the principles discussed apply equally to lenders.
SARS’ position is that section 24J applies only to amounts that are interest or “similar finance charges” in nature, being amounts that compensate a lender for the time-based use of money. While the definition of interest in section 24J is broad, SARS takes the view that ancillary finance-related fees such as raising, application, structuring or arrangement fees do not fall within this category. According to SARS, these fees are incurred to initiate or arrange access to capital and are typically once-off in nature, not calculated by reference to time, and payable irrespective of the extent or duration of the use of the borrowed funds. Their essential character therefore differs from interest, which accrues over time in consideration for the use of money. As a result, SARS regards such fees as falling outside the scope of section 24J and not deductible under section 24J(2). However, SARS acknowledges that these amounts may still be deductible under the general deduction formula in section 11(a), read with section 23(g), provided they are incurred in the production of income and are not capital in nature, having regard to the relevant facts and circumstances.
Option 2 Consequences
Taking the more prudent approach is likely to result in the taxpayer not claiming a deduction for the fees. Should SARS ultimately lose their appeal, and the raising fees turned out to be deductible all along, the taxpayer may not be able to claim the tax benefit for prior years, particularly if the relevant assessments have already prescribed or the time period for objections have already lapsed as the appeal process can take quite some time.
Mitigating the risk, either way:
Should the taxpayer adopt option 1, the risk is the imposition of penalties and interest if SARS’ position wins. One might reasonably consider obtaining a professional tax opinion[7] in support of the taxpayer’s position taken to protect the taxpayer against the imposition of penalties.
Should a taxpayer, in good faith, acquire a well-reasoned professional tax opinion and acts in accordance with such an opinion, South African courts generally regard the understatement, which resulted from the reliance on such a tax opinion to fall foul of the provisions for imposing an understatement penalty (see for example a recent article on how to avoid penalties by relying on tax advice – AVOID TAX PENALTIES: ALL YOU NEED IS SOME TAX ADVICE? – Unicus Tax Specialists SA), even though SARS may have expressed a different view.[8]
A pragmatic approach to dealing with the consequences of electing option 2 might lie in simply objecting to the assessment in which the relevant raising fee is not allowed as a deduction.
Indeed, the assessment by the which the taxpayer could then be said to be aggrieved by, would be caused by his/her own doing (because they did not claim it in the tax return). Suffice it to state that the Supreme Court of Appeal, in GB Mining and Exploration SA (Pty) Ltd v Commissioner for the South African Revenue Service,[9] held that a taxpayer is free to object to an assessment even if the taxpayer is the cause of that incorrect assessment. At first glance then, this approach seems to take away the risk of option 1 (because SARS can’t raise an additional assessment) and mitigates the potential adverse consequences of option 2 (because the taxpayer immediately objects to the assessment).
Enter however, section 99(1)(d)(ii) of the Tax Administration Act, 2011 (“the TAA’). In short, the section provides that SARS cannot reduce an assessment if the preceding assessment was based on a practice generally prevailing.
A “practice generally prevailing” is defined in section 5(1) of the TAA as “a practice set out in an official publication regarding the application or interpretation of a tax Act.” The term “official publication” is further defined in section 1 of the TAA to include “a binding general ruling, interpretation note, practice note, or public notice issued by a senior SARS official or the Commissioner.” In line with section 89(3) of the TAA, a binding general ruling may, in practice, be issued in the form of an interpretation note.
The SARS Note qualifies as a practice generally prevailing. The argument then possibly being that an objection against an assessment where the assessment does not treat raising fees as similar finance charges (like the one a taxpayer would be objecting to under option 2 above) prescribes at the point in time it gets issued – because it was based on a practice generally prevailing (or at least so the argument goes).
If so, the conclusion might be that whilst the taxpayer is indeed allowed to object to an assessment, SARS will not be allowed to reduce that assessment by virtue of the operation of section 99(1)(d)(ii). Is that perhaps the ultimate reason for the SARS Note? To effectively unilaterally create a “freeze period,” as it were, on deductions of raising fees (at least in terms of section 24J) until such time as a higher court finally determines the matter?[10]
If so, then the issue of the SARS Note may appear to amount to an attempt by SARS to unliterally force its interpretation down on taxpayers for as long as no higher court has told them they are wrong.
The Constitutional Court, in Marshall NO and Others v Commissioner for SARS[11] has had the following to say on this issue:
“Why should a unilateral practice of one part of the executive arm of government play role in the determination of the reasonable meaning to be given to a statutory provision? It might conceivably be justified where the practice is evidence of an impartial application of a custom recognized by all concerned, but not where the practice is unilaterally established by one of the litigating parties. In those circumstances it is difficult to see what advantage evidence of the unilateral practice will have for the objective and independent interpretation by the courts of the meaning of legislation, in accordance with constitutionally compliant precepts. It is best avoided.” [12]
At best then for SARS, the SARS Note might conceivably carry some weight when it sets out a custom recognised by all concerned as opposed to a practice that is unilaterally established by SARS. As far as can be discerned, the SARS Note did not go out for public comment as many SARS Interpretation Notes often do. As a result, the interpretation set out in the SARS Note lacked the benefit of input from the public. It therefore cannot be reasonably said that the SARS Note sets out a custom that is accepted by all concerned.
However, when a taxpayer elects the more prudent option 2 (i.e. by not treating these fees as similar finance charges), has the taxpayer by doing so accepted the practice determined by SARS in the SARS Note? If so, what could it mean for the taxpayer? It could conceivably mean an acceptance of an interpretation and the application of a prescription rule that might potentially operate to deny that deduction forever.[13]
Conclusion
The issue by SARS of the draft note has placed taxpayers in a precarious position vis a vis the treatment under section 24J of fees like raising fees. Not claiming it might appease SARS but may potentially finally adversely affect the taxpayer’s bottom line. Claiming it runs the risk of penalties as high as 200% of the tax not charged and interest.
As precarious as the position might be, it is most certainly possible to navigate the uncertainty with the right guidance by suitably qualified professionals. These are professionals, like those at Unicus Tax, who consider what the real-world risks are of whatever position is adopted and what the necessary and practical possible options are to mitigate that risk.
For further information on this topic you can view our training video on our YouTube Channel – Link here
[1] Taxpayer Trust v Commissioner for the South African Revenue Service (IT 76795) [2025] ZATC 1 (13 January 2025) (hereafter “the judgment”)
[2] South African Revenue Service (SARS), Interpretation Note 142: Meaning of “similar finance charges” (hereafter “the note”)
[3] Paragraph 28 of the Judgment.
[4] Paragraph 35 of the Judgment.
[5] Paragraph 44 of the Judgment.
[6] Paragraph 44 of the Judgment.
[7] In terms of section 223(3)(b) of the Tax Administration Act, 28 of 2011.
[8] Recall a memorable argument by SARS in a recent matter to the effect that if the taxpayer is aware that SARS holds a different view to the one issued by a tax professional in an opinion, then the taxpayer should rather choose SARS’ view. It was swiftly rejected by the court.
[9] [2014] ZASCA 29, 2015 (4) SA 605 (SCA)
[10] Bear in mind that in terms of section 5 of the TAA, a practice generally prevailing ceases to exist only when, amongst other things, a higher court contradicts the practice and then only from the date of that judgment – (section 5(1)(b) of the TAA).
[11] CCT208/17 [2018] ZACC 11 (25 April 2018).
[12] Marshall NO and Others v Commissioner for SARSCCT208/17 [2018] ZACC 11 (25 April 2018) at para 10.
[13] There are several counter arguments against this conclusion which are not mentioned in this article, but it is not inconceivable that the conclusion reached here may very well be the ultimate aim of issuing the SARS Note whilst the appeal against the judgment of the Tax Court is pending.
