We don’t often seem to get victories in the courts but when we do it is important to understand their mechanics so we can get the benefit of the rulings.
last week there was a court ruling that impacts the way we get to make certain deductions, so let us use this article to better understand the ruling and how it can benefit us as ordinary consumers.
The Supreme Court of Appeal (SCA) judgment has provided an important win for SA taxpayers and clarified how certain financing costs should be treated for tax purposes.
The case involved the SA Revenue Service (SARS) and the Cornucopia Trust, which had incurred financing or “raising” fees when obtaining loan facilities.
These fees were charged by the lender for making funding available.
SARS disputed whether these costs qualified for a tax deduction under section 24J of the Income Tax Act.
The SCA ultimately found in favour of the taxpayer. It held that certain financing-related fees can qualify as deductible finance charges where they are sufficiently connected to obtaining finance.
Importantly, the Court looked at the economic substance of the charge, rather than simply the label attached to it.
Why does this matter to ordinary South Africans?
The ruling does not mean that every bank fee, loan charge or administration cost is automatically tax deductible.
The circumstances and purpose of the expense remain important.
However, it provides greater clarity and reinforces the principle that genuine costs incurred in obtaining finance may receive appropriate tax treatment where the requirements of the Income Tax Act are met.
For individuals and investors, this could be particularly relevant when borrowing money to acquire or develop income-producing assets, such as investment property or assets used in a business.
For example, an investor may pay an arrangement or raising fee to secure a substantial loan to purchase an investment property.
If that fee meets the requirements established by the legislation and the SCA judgment, the investor may potentially claim a deduction against taxable income.
This can reduce the investor’s effective tax cost and improve the after-tax economics of the investment.
The ruling also highlights an important lesson when evaluating finance: the interest rate is not the only cost that matters.
Arrangement fees, raising fees and other financing charges should be considered when calculating the true cost of borrowing.
For investors using debt strategically, understanding the tax treatment of these costs can therefore make a meaningful difference to the overall investment return.
From a financial-planning perspective, this is a reminder of why financial decisions should not be considered in isolation.
The correct financing structure, investment strategy and tax treatment can work together to improve long-term wealth creation.
The SCA ruling is therefore a positive development for taxpayers, but it should not be interpreted as a blanket deduction for all borrowing costs.
Each individual’s circumstances need to be considered carefully, and professional tax and financial advice should be obtained before relying on a deduction.
><Blueprint Finance Brokers in East London owner Scott Roebert has been a financial planner for 25 years, specialising in bespoke investments and retirement planning. You can find him on Facebook