ARTICLE · 09 JUNE 2015

Taxation Of Interest - The Complex Web

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The number of provisions contained in the Income Tax Act, 58 of 1962 which deal with tax treatment of interest income and interest expenditure have gradually increased over time.

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Michael Reifarth

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The number of provisions contained in the Income Tax Act, 58 of 1962 ("the Act") which deal with tax treatment of interest income and interest expenditure have gradually increased over time. There are numerous aspects to be borne in mind by resident and foreign companies when considering the income tax and withholding tax implications which may arise in respect of transactions giving rise to interest income and interest expenditure.

This article serves as an outline of certain provisions which should be given consideration when assessing the tax impact which interest income or expenditure may have on the position of a company.

Interest deductions

The foundation of the tax treatment of interest lies in section 24J of the Act. Section 24J of the Act applies to qualifying "instruments" and contains the principle that an amount of interest expenditure is incurred by a taxpayer by applying a constant compound rate of interest over the term of an instrument in

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