John-Paul Fraser | Specialist | Cross-Border Taxation and Investment | Tax Consulting SA | mail me |
On 7 September 2026, the Supreme Court of Appeal (SCA) handed down a significant judgment against the South African Revenue Service (SARS). The judgment confirmed that certain financing fees qualify for tax deductions under section 24J of the Income Tax Act, 58 of 1962.
The SCA’s judgment in The Commissioner for the South African Revenue Service vs Cornucopia Trust (469/2025) [2026] ZASCA 116 could have significant implications for property investment structures and other debt-funded investments.
At the heart of the case was the treatment of certain financing-related charges under section 24J. This area has been the subject of legal debate, particularly because the Act does not define related finance charges or similar finance charges.
Who are the winners under the Supreme Court’s decision?
The outcome confirms that certain financing fees may qualify for deduction under section 24J. As a result, it has the potential to reduce the after-tax cost of funding across a wide range of capital-intensive industries.
The ruling has substantial and transformative implications for property investors, infrastructure developers, renewable energy projects, private equity funds and corporate groups. These businesses often rely heavily on debt funding and refinancing arrangements.
The decision presents a material opportunity. Therefore, taxpayers should urgently consider its impact on existing financing structures, upcoming transactions and refinancing strategies. Tax deductibility may now warrant closer consideration when businesses assess the overall cost of debt funding.
The question before the court
Financing fees, often referred to as raising fees, arrangement fees or facility fees, are amounts charged by lenders or arrangers to make funding available to a borrower. Lenders typically calculate these fees as a percentage of the loan amount. These fees form part of the overall cost of obtaining debt finance.
The question before the court was whether the raising fees in this case constituted finance charges sufficiently similar to interest. The Court therefore had to determine whether they qualified for a tax deduction.
Cornucopia Trust, a Bloemfontein-based property investment trust, obtained substantial funding from entities within the Sanlam Group. It used the funding to acquire and refinance specific commercial properties. As part of these transactions, the trust paid upfront raising fees of approximately 2% of the value of the loan facilities.
SARS disallowed the deductions. It accepted that the raising fees were finance charges. However, SARS argued that they were not sufficiently similar to interest to fall within section 24J.
Why the deductibility was contested
The dispute centred on amendments made to section 24J in 2016. Before the amendment, the legislation referred to interest or related finance charges. Parliament amended the wording to interest or similar finance charges. SARS argued that this amendment was intended to narrow the scope of deductible financing costs and exclude raising fees.
SARS argued that the finance fees in this matter lacked the fundamental characteristics of interest:
They were upfront, once-off payments incurred before the loan agreements became effective, conditional upon drawdown, and paid for the arrangement of the loans rather than for the use of the borrowed money. They are not linked to the time value of money. Nor are they compensation linked to the outstanding capital balance or loan duration. As such, the finance fees are separate from the interest.
According to the judgment, Cornucopia contended that the amendment did not intend to excise raising fees from the definition. It argued that raising fees are an economic reality of modern finance and a well-known commercial concept. Cornucopia also argued that these fees represent an inevitable requirement when acquiring a loan.
The raising fee is the key that unlocks the funds. Without payment of a raising fee… there would be no access to, and no receipt of, the loan funds. Thus, the raising fee is inextricably linked with obtaining the loan and constitutes a payment for the credit advanced.
While the Supreme Court accepted that Parliament intended to narrow the provision, it rejected SARS’ interpretation. Instead, the court adopted a commercially realistic approach. It focused on the economic substance of the fees rather than their label.
The court found that the raising fees were directly linked to the amount borrowed. It also found that the fees were necessary to access the funding and formed an integral part of the overall funding arrangement. The fees were not merely consideration for arranging the facilities. Instead, they formed part of the consideration paid for the provision of credit itself.
The court also recognised that lenders could structure the cost of funding in different ways. A facility could carry a higher interest rate and a lower raising fee, or vice versa. Either structure could achieve substantially the same commercial outcome. For this reason, the court concluded that the fees were sufficiently similar to interest. The fees were therefore deductible under section 24J.
Considered a big win for taxpayers
The significance of the judgment extends beyond the technical interpretation of section 24J. Deductibility directly affects the after-tax cost of borrowing and the economics of debt-funded transactions. Consequently, tax deductibility can materially affect the economics of financing arrangements.
Sectors that rely heavily on external funding will find that this judgment provides important authority for taxpayers seeking to deduct financing charges. These charges must share relevant functional characteristics with interest. They must also form part of the lender’s compensation for the provision of credit.
The judgment should not, however, be interpreted as a blanket approval of all costs incurred in connection with funding transactions. The court distinguished raising fees from more peripheral expenses such as legal fees, advisory costs and administrative charges.
Taxpayers will still need to demonstrate that a particular fee forms part of the cost of obtaining credit. They must distinguish such costs from expenses that merely facilitate the transaction. This distinction remains important when considering tax deductibility under section 24J.
A significant appellate loss for SARS
SARS is widely regarded as a formidable opponent in tax disputes. It generally pursues appeals only where important legal principles, significant revenue implications or broader tax administration issues are at stake.
Considering this, the importance of Cornucopia is heightened by the fact that SARS relied heavily on a legislative amendment. That amendment was intended to narrow the deduction. Despite this, the Supreme Court concluded that SARS’ interpretation was overly restrictive.
The court also found that the interpretation failed to reflect the commercial reality of the financing arrangements before it.
The rules going forward
The Cornucopia decision is likely to become a leading authority on the interpretation of section 24J and the deductibility of financing costs. It reinforces the principle that South African tax law should be applied in a commercially sensible manner. It also indicates that taxpayers should not be denied deductions merely because financing costs are structured differently from conventional interest.
This judgment also serves as a reminder that well-founded challenges to SARS assessments can succeed. This remains possible even at the highest levels of the judicial system.
The ruling has important implications for businesses, property investors and taxpayers with debt-funded structures or ongoing SARS disputes involving financing costs. For guidance on how this decision may affect your tax position, funding arrangements or current SARS matter, it is critically important to consult with a tax specialist.