The recent decision of the Supreme Court of Appeal (SCA) in
CSARS v Cornucopia Trust [2026] ZASCA 116 (Cornucopia Trust) concerned the deductibility of loan raising fees under section 24J. The taxpayer incurred substantial raising fees in connection with acquisition and refinancing facilities and treated those fees as deductible financing costs spread over the life of the loans. SARS disagreed. The majority of the SCA found for the taxpayer. The minority dissent found for SARS.
Viewed narrowly, the dispute concerned whether a raising fee constitutes a "similar finance charge" for purposes of section 24J. Viewed more broadly, the case asks whether SARS achieved its objective of narrowing the definition of “interest” in 2016.
Prior to the amendment in 2016, section 24J referred to "interest or related finance charges". The SCA in
CSARS v South African Custodial Services [2011] ZASCA 233 (Custodial Services) interpreted the phrase to include charges such as guarantee fees, financial advisory fees, commitment fees, margin fees, legal fees and administration fees as they were accepted as sufficiently connected to borrowing to qualify for deductions.
Following the decision, the section 24J definition of “interest” in 2016 was amended to replace gross amount of any “interest or related finance charges …” with “interest or similar finance charges …”. The Explanatory Memorandum explained that the amendment was intended to limit the deduction to “finance charges of the same kind or nature” as interest.
The significance of the amendment can be seen from Interpretation Note 142 (12 December 2025) (IN 142). IN 142 emphasises that section 24J was not intended to accommodate every cost associated with obtaining finance. IN 142 deals specifically with raising fees, debt origination fees, structuring fees, loan application fees and administration fees, and adopts a distinction between the cost of obtaining capital and the cost of using capital. In SARS's view, raising fees fall into the former category and therefore are not deductible.
It is useful to note that in
Marshall NO v CSARS [2018] ZACC 11, the Constitutional Court was unwilling to treat an interpretation note as an authoritative statement of law. SARS's interpretation may form part of the interpretative context. It is not the law.
The majority judgment in
Cornucopia Trust reached a different conclusion to IN 142. The Court accepted that Parliament intended to narrow the ambit of section 24J after
Custodial Services. At the same time, it rejected an interpretation that would leave little work for the phrase "similar finance charges" to perform. If every finance charge other than interest is excluded, the phrase becomes largely redundant. The court observed that the two examples of “similar finance charges” given by SARS were interest.
The court therefore adopted a functional analysis. The enquiry is not whether a charge is labelled interest, whether it is paid upfront or whether it is described as a raising fee. The enquiry is whether the charge performs a function sufficiently similar to interest. In paragraphs 44 to 47, the Court focused on:
- whether the fee formed part of the consideration for the provision of credit,
- whether it was directly linked to the amount borrowed and passage of time,
- whether it compensated for the provision of capital and risk, and
- whether it formed part of the overall pricing of the financing arrangement.
The Court distinguished between charges that are integral to the provision of credit and charges that merely compensate for ancillary services. Legal fees, advisory fees and similar transaction costs may be related to a financing transaction without being sufficiently similar to interest.
Applying the analysis from the judgment, there is thus a category of fees, linked to the raising of finance, which are not sufficiently similar to interest and thus fall outside section 24J. IN 142 suggests that such fees are commonly capital in nature and therefore unlikely to qualify for deduction under section 11(a). At the same time, paragraph 20(2)(a) of the Eighth Schedule excludes borrowing costs from the base cost of an asset and specifically refers to raising fees, bond registration costs and bond cancellation costs.
A borrower may thus incur a fee linked to obtaining loan funding which is:
- too dissimilar from interest to qualify for deduction under section 24J;
- too capital in nature to qualify under section 11(a); and
- excluded from base cost of an asset for capital gains tax purposes.
There is effectively no relief for these types of expenses for the borrower. Many different types of fees are routinely incurred in acquisition funding, refinancing exercises and large commercial lending arrangements. In some cases, they amount to millions of rand. What deepens the black hole for the borrower is that input tax may also not be claimable on these expenses.
The judgment also raises practical questions for borrowers who accepted IN 142 and, on that basis, never claimed deductions for financing costs. It may be worth reconsidering the deductibility of these expenses given that the majority in
Cornucopia Trust emphasised the importance of the facts and the commercial function of the fee.
SARS is also likely considering the objective of the 2016 amendment and IN 142. If that objective was to prevent section 24J from becoming a repository for every charge associated with borrowing, the amendment may have succeeded. If the objective was to exclude raising fees from section 24J altogether, the position is considerably less clear.
Whether SARS is satisfied with that outcome remains to be seen. If SARS regards the judgment as undermining the purpose of the 2016 amendment, legislative intervention with retrospective effect would not be surprising. The question now is whether SARS will appeal the judgment to the Constitutional Court or, alternatively, amend section 24J to deal clearly with the impact of
Cornucopia Trust and narrow the definition of “interest” even more.
