For years, taxpayers grappled with the tax treatment of bond-raising fees and has been subject to uncertainty. It is not unusual, that when a taxpayer applies for funding, that the cost of borrowing may include an upfront charge for arranging or raising the required finance. This is commonly referred to as bond-raising fees. On the other hand, interest is generally understood to be the amount paid to compensate the lender for the time value of money. In other words, the cost for using the lender’s money over a period of time.
SARS Interpretation
SARS issued Interpretation Note 142 (December 2025), where SARS sets out its views on the tax treatment of bond-raising fees including whether such fees may qualify as “similar finance charges” to interest within the ambit of section 24J of the Income Tax Act. SARS typically view bond-raising fees as capital in nature rather than being an expense incurred in the production of income. Consequently, SARS is of the view that the expense does not qualify as a deduction under section 11(a).
Furthermore, SARS generally considers bond-raising fees not to constitute “similar finance charge” to interest as contemplated in the definition of “interest” under section 24J(1). On this basis the expense would do not qualify as a deduction under section 24J(2).
The consequence of SARS’s interpretation would result in bond-raising fees failing outside both the revenue and capital gain tax deduction provisions. This is because bond-raising fees are specifically excluded from determining the “base cost” of an asset under paragraph 20(2)(a) of the Eighth Schedule to the Income Tax Act.
Cornucopia Trust Supreme Court of Appeal Case
In the recent Supreme Court of Appeal (“SCA”) in The Commissioner for the South African Revenue Service v Cornucopia Trust, the court dealt with the very issue on the tax treatment of bond-raising fees. The majority of the SCA, based on the particular facts, concluded that the bond-raising fees constituted “similar finance charges” to interest for purposes of section 24J.
Cornucopia Trust’s business entailed property investment and property leasing. Cornucopia Trust entered into finance arrangements and paid bond-raising fees in connection to those finance arrangements. The bond-raising fees paid was 2% of the capital facility. Central to this case before the SCA was whether the bond-raising fees constitute “similar finance charges” to interest as contemplated in the definition of “interest” under section 24J. SARS strongly contended that the cost lacked the fundamental characteristic of interest.
In reaching a conclusion, the SCA, cconsidered the nature of interest and the meaning of a finance charge. The court recognised that interest is not limited to compensation for the time value of money and may also include compensation for the risk assumed by a lender in providing credit.
A number of characteristics of the finance arrangement were relevant in reaching a conclusion, including that:
- the bond-raising fee paid was calculated as a percentage of the capital facility and a precondition to drawing down the funds;
- the bond-raising fees formed part of the cost of obtaining the loan facility;
- on evidence, the bond-raising fees were directly linked to the interest rate, and the period of the facility;
- the bond-raising fees were considered an early compensation for the use of the capital, and that the upfront payment thereof did not constitute a sufficient argument to exclude it from interest;
- the reference to “interest as contemplated in section 24J” and “raising fees” in paragraph 20(2)(a) of the Eighth Schedule emphasise the similarity between interest and raising fees rather than undermining;
- bond-raising fees in this case are distinguished from ancillary costs such as legal, financial advisory and other service-related fees and that it does not necessarily constitute “finance charges similar” to interest.
Things Taxpayer’s Should Be Mindful Of
Although the judgment represents a significant development for taxpayers and important guidance, taxpayers should remain prudent and exercise caution, as the judgment does not establish a blanket rule that all bond-raising fees qualify as “similar finance charges” to interest under section 24J. There are several considerations that should be taken into account in respect of a particular finance arrangement, and taxpayers should not rely solely on the description of the expense as “raising fee” to determine its deductibility. The substance, terms and operation of the financing arrangement remain important.
Taxpayer practitioners should be monitoring the case closely to see whether SARS will take the matter further. Taxpayers are therefore urged to work closely with their tax advisors. Should you be uncertain about the deductibility of your bond-raising fees, please contact your nearest PKF office for guidance.
