Borrowing costs: when a raising fee can reduce your tax bill
The interest rate is only part of the cost of borrowing. A lender may also charge a fee before releasing the money. For investors financing property or a business, whether that fee is tax-deductible can make a difference to the deal.
By a majority of four to one, the Supreme Court of Appeal has clarified when these raising fees qualify for a deduction. In SARS v Cornucopia Trust (469/2025) [2026] ZASCA 116, delivered on 7 September 2026, the Court dismissed the South African Revenue Service’s (“SARS”) appeal and left standing the deductions claimed by a property investment trust. The decision offers taxpayers support, but does not make every borrowing charge deductible.
What was the dispute?
The Cornucopia Trust (the “Trust”) borrowed from Sanlam entities to finance and refinance properties used in its rental business. The facilities attracted raising fees, generally 2% of the loan amount, payable before the Trust could draw down the funds.
The Trust claimed deductions for portions of those fees in its 2019 and 2020 tax years. It spread them over the loan periods under section 24J of the Income Tax Act 58 of 1962 (the "Act"), which governs the tax treatment of interest.
SARS rejected the deductions. SARS argued that interest pays for borrowing money over time, while a raising fee pays for arranging access to that money.
The question was whether these raising fees fell within the Act’s definition of “interest”, which includes “similar finance charges”.
Why the court allowed the deductions
The majority investigated what the raising fees actually paid for.
On the evidence which the Court accepted, the raising fees were linked to the loan amounts, interest rates and loan periods. The raising fee and the interest rate were two parts of a single price for credit. The lender could, for example, have charged a higher interest rate and a lower raising fee. That relationship mattered. A charge can be "similar" to interest without being identical to it. Paying the raising fee upfront did not, by itself, prevent a deduction.
The Court nevertheless drew a line. A fee that compensates the lender for the risk and cost of being deprived of its money is "similar" to interest. A fee that pays for the work of arranging the loan is not: it is a "related fee". So legal fees and advisory fees do not qualify under section 24J simply because they arise from borrowing.
The dissenting judgment viewed the raising fees as payment for arranging the facilities, rather than a return for advancing money over time. The majority judgment prevails, but the split shows how much turns on the facts behind each claim.
What investors should do
Start with what the fee pays for. Keep the loan agreement and the fee letters, and be able to show how the fee tracks the loan's amount, term and interest rate.
Test the claim against section 24J itself. Resembling interest is not enough: the fee must still meet the section's other requirements, including the link to earning income.
Check any claim SARS has already disallowed. This judgment may support a challenge to a disallowed deduction, but it will not reopen an assessment on its own; one must still be cognisant of the deadlines governing objections and appeals.
The lesson for investors: what a fee pays for, and how it is priced, matter more than what it is called.
