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The income tax deductibility of interest incurred is in the spotlight again in the recent Unitrans Holdings v CSARS (A3094/2022) [2023] ZAGPJHC(09 January 2024) judgment.


In terms of section 24J(2) of the Income Tax Act No. 58 (1962), any person that is the issuer in relation to an instrument may claim an income tax deduction from the income of that person derived from carrying on any trade for interest incurred, if that amount is incurred in the production of income. The quantum of the deduction that can be claimed should be determined in accordance with the provisions of section 24J.


In 2022, SARS issued a notice of its intention to withdraw Practice Note 31 of 1994, being of the view that its provisions were being abused by taxpayers.

Practice Note 31 of 1994 provided a concession to taxpayers that accrue interest income by enabling them to obtain a deduction in respect of interest expenditure incurred in the production of interest income without the taxpayer having carried on a trade. The deduction is limited to taxable interest.

National Treasury proposed that Practice Note 31 of 1994 should be withdrawn, and that it should be replaced by new legislative guidance to be contained in section 11G of the Income Tax Act.

Effective for years of assessment commencing on / after 1 January 2025, interest incurred by a person may be claimed as an income tax deduction form the taxable income of that person, to the extent that the interest is incurred in the production of interest income that is included in the income of that person and is not incurred in carrying on any trade.


The Unitrans Holdings v CSARS (A3094/2022) [2023] ZAGPJHC (09 January 2024) judgment confirmed that if interest expenditure is not closely linked to the income earning operations of a person, then such interest is not deductible as the expenditure is not incurred in the production of income.

For interest to be incurred in the production of income, the purpose of the expenditure and the closeness of its connection with the relevant income-earning operations are important factors to be considered.

In Unitrans it was held that:

  • The purpose of the loans giving rise to the interest expenditure was to benefit other companies in the Unitrans Group.
  • It was not the intention of the taxpayer to earn an income but to help the group companies to increase their earning capacity.
  • The taxpayer was not involved intimately in the management of the group companies and the interest charged on loans advanced by the taxpayer was always lower than the rate of interest at which the taxpayer borrowed the monies.

In other words, the taxpayer borrowed funds to enable its group companies to improve their future financial income-earning capabilities by not charging or charging nominal interest. This was held to be indicative of the fact that the taxpayer did not pursue its self-interest and that its intention was never to earn any income.

As a result, the Gauteng High Court confirmed that the taxpayer was only entitled to claim an income tax deduction to the extent to which the interest expenditure did not exceed the interest income. The balance of the interest expenditure was regarded as unproductive interest, being attributable to investing holding activities which produced exempt income.


Corporate taxpayers should carefully consider the activities conducted by their group treasury function. While the objective of a group treasury function is generally to benefit group companies by providing them with access to more affordable financing, such objective should also include the furtherance of the treasury function’s own commercial interests.

It is sound tax risk management to ensure that written loan agreements are in place, and that the treasury activities support a contention that the purpose of borrowing money is to apply such funding to produce income.

  If you require guidance on tax related aspects of your group treasury function as part of your corporate tax compliance and corporate tax planning. Please follow us on social media  to keep track of tax-related developments.