No More Interest Deductions?

Currently, a taxpayer is entitled to deduct interest calculated in terms of section 24J(2) of the Income Tax Act, 1962 ("Act") if the taxpayer:

• derived income from carrying on a trade; and
• if the amount of the interest is incurred in the production of income.

Many taxpayers who do not carry on a trade have until now relied on Practice Note 31 of 1994 ("PN 31") to claim a deduction for interest incurred on funds borrowed where such funds were invested in interest bearing instruments or on-lent and resulted in the taxpayer earning interest income. In particular, Practice Note 31 states as follows:

"While it is evident that a person (not being a moneylender) earning interest on capital or surplus funds invested does not carry on a trade and that any expenditure incurred in the production of such interest cannot be allowed as a deduction, it is nevertheless the practice of Inland Revenue to allow expenditure incurred in the production of the interest to the