South Africa: Legislation allowing deduction of expenses incurred in production of interest income tabled in Parliament

New section 11G allowing for a limited deduction of expenses incurred in production of interest income introduced

Legislation allowing deduction of expenses incurred in production of interest income

Article Posted date 10 November 2023

The Taxation Laws Amendment Bill 36 of 2023 has been tabled in Parliament, following the July 2023 release for public comment of the Draft Taxation Laws Amendment Bill, 2023, which would introduce a new section 11G allowing for a limited deduction of expenses incurred in the production of interest income when the taxpayer is not trading. Read TaxNewsFlash

There were a number of concerns with the proposed narrow provisions of the new section 11G, including the deduction only being available to companies and only being claimable against interest income accruing in respect of a loan advanced to another company that forms part of the same group of companies.

Accordingly, the following changes have been made to the new section 11G in the bill now before the Parliament:

  • The term “interest” has been clarified to mean interest as defined in section 24J (and no regard should be given to whether the amount to be deducted is of a capital nature or not).
  • The deduction has been expanded to apply to any person that incurs interest expenditure in the production of interest income without regard to any shareholding threshold of any back-to-back lending arrangement.
  • The effective date has been delayed from 1 January 2024 to 1 January 2025 and will apply only in respect of years of assessment commencing on or after that date which will allow for further stakeholder engagement.
  • Practice Note 31 will remain in effect until this newly proposed effective date.

Read a November 2023 report [PDF 387 KB] prepared by the KPMG member firm in South Africa

 

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