The SCA has now resolved the dispute between the Tax Court and SARS over raising fees. More interestingly, the majority identified substantially the same interpretative problem with SARS’s position that we raised when Interpretation Note 142 was issued.

Earlier this year, in Contradictory Views by Tax Court and SARS: What Now?, we wrote about the uncomfortable position taxpayers found themselves in following a Tax Court judgment concerning the deductibility of raising fees.

The Tax Court had held that the raising fees in question constituted “similar finance charges” for purposes of section 24J of the Income Tax Act. SARS disagreed. It subsequently issued Interpretation Note 142 (“IN 142”), in which it expressed the view that raising fees do not constitute similar finance charges.

We asked the obvious question: what must taxpayers do when a court says one thing, but SARS officially says another?

At the time, SARS had already appealed the Tax Court judgment. We therefore knew that a higher court would eventually have to resolve the disagreement.

That has now happened.

On 7 September 2026, in Commissioner for the South African Revenue Service v Cornucopia Trust, the Supreme Court of Appeal (“SCA”), by a majority of four to one, dismissed SARS’s appeal and held that the raising fees in question constituted “similar finance charges” for purposes of section 24J.

But there is something particularly interesting about the judgment.

The majority did not merely disagree with SARS about the particular raising fees. It identified essentially the same fundamental difficulty with SARS’s interpretation that we had previously identified when IN 142 was issued.

The problem with SARS’s interpretation

Section 24J defines “interest” to include, amongst other things, “interest or similar finance charges”.

The word “or” is important.

The provision does not say “interest and other interest”. Nor does it say that a finance charge must actually constitute interest before it can qualify. It contemplates interest on the one hand and something other than interest, but sufficiently similar to it, on the other.

When we presented training on Interpretation Note 142 shortly after SARS issued the Note, we questioned whether SARS’s interpretation gave proper effect to that distinction.

We said at the time that SARS appeared to be conflating “similar” with “the same”, despite acknowledging that “similar” does not mean identical.

If the test for being “similar to interest” requires the amount actually to satisfy the characteristics of interest, we effectively end up saying: To be similar to interest, it must be interest. If that is the test, why does the legislation use the word “or”?

The SCA majority has now identified substantially the same problem.

“Similar” cannot mean “identical”

SARS was undoubtedly correct about one thing. The legislation used to refer to “interest or related finance charges”. Following the SCA’s earlier decision in South African Custodial Services, the word “related” was replaced with “similar”. The purpose was clearly to narrow the provision.

It was no longer sufficient for an expense merely to have some connection with obtaining finance. Legal fees, advisory fees and other expenses associated with obtaining a loan should not fall within section 24J merely because they are connected with the financing transaction.

But the SCA majority held that SARS had effectively taken the narrowing too far.

There must still be finance charges that are not interest, but which are sufficiently similar to interest to fall within the words “similar finance charges”. Otherwise those words become superfluous.

The Court said that it could not be the case that only interest and disguised interest qualify for the section 24J deduction.

That difficulty became particularly apparent when SARS was asked during argument to identify examples of finance charges which, on its interpretation, would actually qualify as “similar finance charges”. SARS referred to substitute margins and default interest.

The majority was unimpressed. Default interest, the Court observed, is plainly interest, albeit at a higher rate following default. The examples did not satisfactorily demonstrate a recognisable category of finance charges that were genuinely something other than interest, but nevertheless similar to it.

That was precisely the concern we raised when IN 142 was issued.

SARS accepted linguistically that “similar” does not mean “identical”, but its substantive test appeared to leave remarkably little room for anything other than interest itself to qualify.

Does this mean all raising fees qualify?

No. And this is an important qualification to the judgment.

The SCA did not decide that anything labelled a “raising fee” automatically constitutes a similar finance charge. The majority adopted a functional approach.

Interest, it held, is not merely an amount mechanically calculated by applying an interest rate to capital over time. Economically, it represents the cost of credit: compensation to the lender for making credit available, for the time value of its money and for the risk associated with advancing the funds.

The question is therefore whether another finance charge performs a sufficiently similar function.

On the particular facts before the Court, the raising fee did.

The fee was a condition for the granting of the credit. It was calculated as a percentage of the loan amount. The uncontested evidence was that its amount was commercially linked to the interest rate and the period of the facility. The lender could effectively have structured the same economic bargain by charging a higher interest rate and a lower raising fee, or potentially no separate raising fee at all.

The majority accordingly regarded the raising fee and the interest as components of the economic cost of the credit rather than entirely separate things.

The Court drew an important distinction.

A fee charged merely for the work involved in arranging finance may remain only a related finance charge and fall outside section 24J. But where a fee is inextricably linked to the procurement and pricing of the loan, and performs the same economic function as interest by compensating the lender for providing its capital and assuming the associated risk, it may satisfy the higher test of being similar to interest.

So the judgment is not authority for the proposition that all raising fees are deductible.

Where does this leave Interpretation Note 142?

This is perhaps now the more interesting question.

When we wrote about this issue previously in Contradictory Views by Tax Court and SARS: What Now?, we pointed out that IN 142 did more than merely record SARS’s opinion.

An Interpretation Note is an “official publication” for purposes of the Tax Administration Act (“TAA”) and can therefore constitute a practice generally prevailing. That mattered because the TAA attaches consequences to assessments made in accordance with a practice generally prevailing.

Our earlier concern was that SARS had effectively created an official practice contrary to the Tax Court judgment while its appeal was pending, leaving taxpayers in an extremely difficult position.

Section 5 of the TAA also contemplates circumstances in which a practice generally prevailing ceases to apply when the underlying interpretation is materially affected by a later court judgment. The precise effect of Cornucopia on IN 142 therefore becomes an important question, particularly if SARS seeks to take the judgment further.

SARS might seek to argue that Cornucopia is fact-specific: the SCA merely decided that these particular raising fees, having regard to their particular commercial characteristics, qualified as similar finance charges.

There is some support for emphasising the factual nature of the finding. The majority repeatedly stressed the particular characteristics of the raising fees before it.

But that cannot be the end of the enquiry.

The majority also rejected something more fundamental in SARS’s interpretative approach. Its criticism that SARS’s construction risks leaving “similar finance charges” with virtually no independent content is not confined to whether Cornucopia’s particular fee was 2%, was payable upfront, or related to a particular facility. It concerns the proper interpretation of the words “interest or similar finance charges” themselves.

That makes it considerably more difficult to maintain the broad proposition in IN 142 that raising fees are conceptually different from interest because they relate to obtaining capital while interest relates to its use. The SCA majority has now demonstrated that this distinction is not necessarily determinative.

What happens next?

There are therefore at least two things to watch.

First, SARS will have to decide whether it seeks to take the matter further.

The SCA judgment was not unanimous. Matojane JA delivered a detailed dissenting judgment which substantially supports SARS’s interpretation. The dissenting view was that interest has an essential temporal characteristic: it is a return to the lender measured by reference to the amount advanced and the period for which the advance remains outstanding. The raising fee, by contrast, was payable upfront for arranging access to the facility and was therefore the cost of obtaining capital rather than the price of retaining it over time.

Whether SARS seeks leave to appeal further will therefore be important.

Second, if the SCA judgment stands, SARS will have to consider what it does with IN 142.

Can an Interpretation Note continue to state an interpretation which the SCA has materially rejected? At the very least, it would seem difficult for IN 142 simply to remain untouched as though the judgment had never happened.

The bigger lesson

There is also a broader lesson here beyond raising fees.

SARS Interpretation Notes are important. They tell taxpayers how SARS intends to administer legislation and, because of the statutory rules surrounding practices generally prevailing, can have real legal consequences.

But an Interpretation Note is not legislation.

SARS remains one of the parties to a tax dispute. Its interpretation of legislation does not become correct merely because it has been published in an Interpretation Note.

That was part of the discomfort we expressed in our earlier article and in the training session on IN 142 when the Note was issued.

In the earlier article we asked what taxpayers were supposed to do when a Tax Court interpreted legislation one way and SARS formally published the opposite interpretation while appealing the judgment.

SARS has now received the higher-court determination it sought.

And, on the central interpretative issue, the majority has reached substantially the same difficulty we identified when IN 142 appeared: if something must actually be interest before it can be “similar to interest”, the words “or similar finance charges” cease to have any meaningful independent purpose.

The uncertainty has therefore moved on. The question is no longer simply whether the Tax Court or SARS was correct.

The question now is: what will SARS do with Interpretation Note 142 after the SCA has spoken?

Related Unicus material

Previous article: Contradictory Views by Tax Court and SARS: What Now?

Training video: Unicus Tax Updates 1/2026 – Interpretation Note 142