Guide on “Similar Finance Charges” Under Section 24J

13 Jan

This article will count 0.25 units (15 minutes) of unverifiable CPD. Remember to log these units under your membership profile.

If your clients borrow or lend money as part of their business, Section 24J of the Income Tax Act is one piece of legislation you need to understand and apply. Thanks to SARS’s latest Interpretation Note 142, issued in December 2025, there’s now clearer guidance on what does, and more importantly, what doesn’t, count as a deductible finance charge for tax purposes.

What is Section 24J?

Section 24J deals with how to treat interest and similar finance charges for tax. When your client is paying interest on a loan or earning interest on an investment, this section applies to ensure those amounts are taxed or deducted on an accrual basis. This means that the interest is accounted for as it builds up each month, not just when the cash is paid or received. For an example on how to apply the accrual basis for section 24J read our previous article.

Section 24J applies to anyone involved in a financial arrangement. That includes businesses:

Borrowing or lending money
Issuing or investing in bonds
Using long-term loans
Receiving structured repayments or interest-based returns over time.

This covers a wide range of SMEs and corporates, not just financial institutions.

The tricky part: Not all finance-related costs qualify

The new Interpretation Note 142 issued in December 2025 draws an important distinction: not all costs linked to a loan qualify as “similar finance charges.”

To qualify under Section 24J, a charge must behave like interest, meaning it must relate directly to the time-based use of money. The mere fact that it’s part of a finance arrangement doesn’t mean it automatically qualifies for a deduction under this section.

So what doesn’t qualify? SARS makes it clear that the following are not deductible under Section 24J:

Loan raising fees (once-off costs to secure a loan)
Service or admin charges (ongoing account maintenance fees)
Legal and registration fees (costs to formalise agreements)
Brokerage or arrangement fees not linked to the use of money over time.

These may still be deductible under other tax provisions (like section 11(a)), but not as interest or similar finance charges.

Why This Matters

Misclassifying finance charges could result in:

Overstated deductions
Non-compliance
Penalties and audit findings

Section 24J is narrow in its scope. You can only use it when the charge is truly interest or very similar to interest. Everything else must be carefully evaluated under general deduction rules or, in some cases, treated as capital.

Does a Cost Falls Under Section 24J: A Quick Test

Before classifying a finance-related charge under Section 24J, use this 5-step test:

Is the cost paid for the use of money over time?
Yes → It may qualify.
No → It likely doesn’t.
Does the amount increase the longer the money is borrowed?
Yes → It behaves like interest.
No → Probably not a “similar finance charge.”
Would this charge exist if the deal was paid in full upfront?
No → It may relate to financing.
Yes → Probably an admin or capital charge.
Is the charge recurring (monthly/annually)?
Recurring = more likely interest.
Once-off = generally excluded.
Does the agreement describe it as interest or finance cost?
If yes, it supports classification under Section 24J — but substance still matters.

Common pitfalls to avoid:

Deducting once-off or capital costs under 24J
Treating admin/legal fees as interest
Assuming any loan-related cost is deductible
Ignoring that timing and purpose matter.

When in doubt, default to caution. If a charge isn’t clearly interest or tied to the time-based use of money, test it under general deduction rules like section 11(a).

Example: Applying the Quick Test

Your client takes out a R5 million loan from a commercial bank. The agreement includes:

Monthly interest of prime + 2%
A once-off loan raising fee of R50,000
A monthly admin fee of R500
Legal fees of R10,000 to register the agreement
A penalty fee for early settlement.

Let’s break these down:

Monthly Interest (Prime + 2%)
This one is straightforward. It’s paid for the ongoing use of borrowed money, it accrues monthly, and it would not exist if the client had paid upfront in cash. It’s clearly recurring and described in the contract as interest.
Result: ✅ Monthly interest qualifies under Section 24J. This is a textbook example of a deductible finance charge. It’s time-based and recurring.
Loan Raising Fee (R50,000 once-off)
This is a once-off charge paid to the bank to secure the loan. It doesn’t relate to how long the money is used and doesn’t increase over time. It would likely still apply even if the loan was paid off early. It’s not described as interest and has none of the features of a time-based finance cost.
Result: ❌ Not deductible under 24J. It’s likely a once off capital cost and should be considered under other sections like 11(a), if at all.
Monthly Administration Fee (R500)
Although it’s charged monthly, this fee is for managing the loan account, not for the use of money. It doesn’t increase the longer the loan is held, and it’s not described as interest in the agreement.
Result: ❌ It does not fall under Section 24J as it does not relate to the use of money over time. It might be deductible as an operating expense if incurred in the course of trade, but not as a finance charge.
Legal Fees (R10,000 for registering the agreement)
These are once-off costs for drafting and formalising the loan. They don’t relate to the time-based use of money and would likely be incurred regardless of the duration of the loan. They’re not treated as interest in any sense.
Result: ❌ Related to setup, not interest and do not qualify under Section 24J. At best, they might be deductible under other provisions if incurred in trade, but they’re not finance charges.
Early Settlement Penalty
This one depends on the details. If the penalty is structured to recover the lender’s lost interest (i.e., a financial compensation for ending the loan early), it may be seen as a time-based charge. But if it’s simply a flat fee or administrative penalty, it wouldn’t meet the 24J test.
Result: 🔶You’ll need to look at the loan terms. If the fee compensates for interest lost over time, it may qualify. If it’s punitive or unrelated to time, it doesn’t.

In Summary

Only time-based charges directly tied to the use of money qualify under Section 24J. Everything else, even if related to the same loan, needs separate analysis.

For business accountants, this is your moment to:

Review your clients’ finance arrangements
Guide them on proper classification
Avoid exposure from incorrect deductions.

If you’re unsure whether a charge qualifies, default to caution and evaluate it under the general deduction rules. Section 24J is precise, and SARS is watching.