Understanding Section 24J: Why SARS Doesn’t Always Allow Your Full Interest Deduction
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Many businesses and individual taxpayers are surprised when SARS disallows the deduction of the full interest they’ve paid. They expect to reduce their taxable income by claiming all the interest paid, only to find that SARS only allows part of it. This can result in unexpected extra tax—and a lot of frustration. The tabling of objections and appeals has consistently proven futile.
Below, we explain why SARS may only allow a portion of the interest you’ve paid as a deduction. The short answer: SARS applies Section 24J of the Income Tax Act, not just Section 11(a), and this changes how interest is recognised for tax purposes.
Let’s break this down.
👨💼💭The Taxpayers’ Perspective
From the taxpayer’s point of view, the interest paid on a loan is a business expense. Since the interest paid occurred in the production of income, the taxpayer believes it should be fully deductible under Section 11(a) of the Income Tax Act.
For example, if you paid R100,000 in interest during the year, you would expect to deduct the full R100,000 from your taxable income.
🏢📚What SARS Does Instead
SARS applies Section 24J, which deals with loan or credit facility interest. According to this section, SARS doesn’t only look at the amount of interest paid in a year. Instead, they spread the interest cost over the loan’s full period using the effective interest rate.
This means SARS doesn’t allow the full interest amount as a deduction immediately — they “deem” or calculate how much interest applies to that tax year, even if you paid more or less in cash.
Under Section 24J, SARS uses the idea of “deemed interest paid”, which means the interest is recognised for tax purposes as if it accrues steadily over time — even if you pay more in the first year and less subsequently. This is SARS allows ‘deemed interest, based on the effective interest rate, reflecting the true borrowing cost evenly over time. This is not the interest you actually pay in a specific year, but the interest SARS considers having been “incurred”.
This treatment aligns with how interest is recognised in financial reporting — using the effective interest method — and ensures that tax deductions are matched to the period in which the debt is used to generate income.
🧩🔍Why SARS Uses Section 24J
SARS follows accounting rules where interest on debt is treated as a financing cost. These rules require that interest be spread out over the life of the loan using the effective interest method, not the flat rate shown in your loan agreement.
So, if a loan lasts more than 12 months, SARS will spread the interest across the years. Only loans that are 12 months or shorter don’t require this calculation.
💡📉Illustrative Example
Imagine you borrowing money through a five-year loan contract. The total interest you’ll pay over the five years is R100,000.
Let’s say you pay R30,000 in interest during the first year. How much of that will you be able to claim as a tax expense?
SARS won’t let you deduct the full R30,000. Instead, they calculate how much of the R100,000 total applies to this tax year. Assuming that the loan was taken out on the first day of the financial year, this would be R20,000 (R100,000 / 5 years) — and that’s all you can deduct. The rest is deferred to future tax years.
So even though you paid R30,000, only R20,000 is tax-deductible now. That means a higher tax bill this year — something most taxpayers don’t expect.
Comparison of Interest Deduction: Section 11(a) vs Section 24J
Let’s assume:
Total interest over 5 years = R100,000
Actual interest paid each year is based on a typical loan structure (front-loaded)
Under Section 24J, SARS spreads the R100,000 evenly: R20,000 per year.
The comparison based on this information is shown in the table below:
💡 Why is there interest charged in the first year of a loan?
Loans are usually repaid in equal monthly instalments, but early payments mostly cover interest, not capital. This is because interest is charged on the outstanding balance, which is highest at the start. Over time, as the loan balance decreases, you pay less interest and more capital each month.
💡Does SARS allow only some of the interest as tax deduction?
Importantly, SARS does allow the full interest as a deduction — just not all at once. It is spread over the term of the loan. So, the difference between what you pay and what SARS allows each year is only temporary. Over the full loan period, you can still deduct the entire interest amount.
Understanding this timing difference helps avoid surprises and allows for better tax planning, especially for long-term debt arrangements.
🧾 In Conclusion
Section 24J can be frustrating if you’re unaware of how it works. It’s not about whether you paid the interest but how SARS recognises that interest over time. SARS spreads the deduction using the effective interest rate method to match the cost of borrowing to the loan period.
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