Raising fees, raising eyebrows: The Cornucopia trust case and ‘similar finance charges’ in the context of interest

Setting the scene – a very brief history of the “interest” definition

We published an article in November 2024 setting out the history of the “interest” definition and the (then) draft SARS interpretation note on “similar finance charges”. That article  is useful for context, and can be accessed here.

Section 24J of the Income Tax Act (“IT Act”) historically defined “interest” broadly, to include traditional interest as well as “related finance charges” connected to obtaining or maintaining funding. In the SCA case of C:SARS v South African Custodial Services (Pty) Ltd³ (“SACS”), our courts confirmed that various borrowing-related costs, including guarantee, commitment, advisory and legal fees, could qualify as deductible interest where they were closely connected to the raising of debt.

However, a 2017 amendment replaced “related finance charges” with “similar finance charges”, signalling a narrowing of the “interest” definition. Following years of uncertainty, SARS’s finalised its Interpretation Note No. 142 (“IN 142”) in December 2025, which adopts a rather restrictive interpretation, emphasising that a finance charge, in order to fall within the section 24J “interest” definition, must have characteristics that are almost indistinguishable from interest, and it should not be viewed too broadly. Notably, SARS makes a distinction between charges incurred to obtain or raise funding and charges incurred for the use of borrowed funds, with the former, in SARS’s view, falling outside the definition of “interest”.

The Cornucopia Trust case

The Cornucopia Trust SCA case was handed down on 7 September 2026, and concerned a taxpayer trust that had obtained substantial loan funding relating to investment properties, and had incurred upfront "raising fees" which were paid to the lenders (being companies within the Sanlam Group) as a condition for accessing the loan finance.

The taxpayer deducted these fees, treating them as amounts falling within the section 24J definition of "interest" on the basis that they constituted "similar finance charges", while SARS contended that the fees were merely ancillary costs of arranging the loans. The dispute ultimately required the SCA to determine whether the raising fees formed part of the cost of credit, and therefore constituted tax-deductible "similar finance charges" included in the section 24J definition of interest.

We have set out below a number of the key principles which the SCA laid down in arriving at its decision that the raising fees did indeed constitute “similar finance charges”.

1. The enquiry is one of similarity, not identity

The court acknowledged that the 2017 amendment from “related” to “similar” undoubtedly narrowed the scope of the “interest” definition in section 24J. Critically, however, "similar" does not mean "identical". A finance charge need only bear a relevant resemblance to interest in its nature, function or commercial effect.

The very use of the word "similar" necessarily envisages the inclusion of finance charges that are not traditional interest, but share its essential characteristics. If only traditional interest qualified,  the phrase "or similar finance charges" would become redundant. The court’s view was that the amendment was intended to narrow the previous connectivity test, not to render the additional wording meaningless.

SARS was pressed by the court to provide examples of “similar finance charges” that were not ‘traditional’ interest, but was unable to do so satisfactorily⁴.  

2. Section 24J contains an expanded statutory definition of interest

The court attached significance to the fact that the “interest” definition “…includes the gross amount of interest or similar finance charges…⁵” (our emphasis), holding that the word "includes" is expansive, indicating that the statutory definition extends beyond the common-law concept of ‘traditional’ interest. Similarly, the use of the word "or" demonstrates that "similar finance charges" must encompass something separate from interest itself.

Accordingly, the enquiry was not to determine whether the raising fees constituted common-law interest, but rather whether they were sufficiently similar to interest within the broader statutory framework of section 24J.

3. A functional approach must be adopted

A central feature of the judgment is its endorsement of a substance-over-form analysis. The court stressed that the characterisation of a finance charge should not depend purely on the label attached to it in a legal agreement, but rather on its economic function and commercial reality.

The question is therefore what role the charge or fee itself performs within the financing arrangement. If its function is equivalent to part of the cost of obtaining and using credit, it may qualify as a finance charge similar to interest, despite a potentially differing contractual description.

4. Interest should be understood broadly as the functional cost of credit

Although the court accepted traditional descriptions of interest as constituting consideration for the supply of money or credit, it cautioned against reducing interest exclusively to compensation for the time value of money.

According to the court⁶, “Interest is the functional cost of credit - what it costs the lender to provide the credit, together with a margin. Interest is not only the time value of the loan but also compensation for the risk involved. This is borne out by higher interest rates for higher risk loans. In this scenario interest is the agreed consideration to the lender for the extension of credit.”

This broader understanding was fundamental to the court's conclusion, because it allowed the comparison between interest and raising fees to focus on their commercial purpose rather than their timing or form.

5. The raising fees were inextricably linked to the provision of credit

The court emphasised that the raising fees were not regarded as deductible simply because they were labelled as "raising fees". Rather, the court found that they were inextricably linked to the credit advanced to the taxpayer, for the following reasons:

• Payment of the raising fee was a prerequisite to drawing down the facility;
• The credit would not have been made available without payment of the raising fee;
• The raising fee was calculated as a percentage of the loan principal amount;
• The amount was directly linked to the funding obtained;
• The raising fee formed part of the lender's overall pricing of the facility; and
• The interest rate and raising fee operated together as components of the overall cost of financing.

The court stated that where credit would not be granted in the absence of the raising fee, the fee and the interest collectively constitute the necessary consideration for the loan.

6. The raising fee performed the same economic function as interest

The court concluded that the raising fees shared the essential functional characteristics of interest because they compensated the lender for the risk assumed in advancing the funds to the taxpayer, and for the deprivation of the use of its money.

As a result, the raising fee was not viewed merely as remuneration for administrative work, arrangement services or transaction execution. Instead, it represented part of the lender's compensation for extending credit and therefore formed part of the effective cost of lending.

7. The fact that the fee was paid upfront was not determinative

SARS argued that the raising fees differed fundamentally from interest because they were charged upfront as a once-off amount. The court rejected this line of reason and observed that the section 24J definition of “interest” expressly contemplates amounts that are “…payable or receivable as a lump sum or in unequal instalments during the term of the financial arrangement…”.

The timing of payment therefore does not determine whether a charge constitutes interest or is similar to interest. On the facts before it, the court found that the upfront nature of the fee did not alter its substantive character as part of the cost of credit.

8. The 2017 amendment was intended to exclude ancillary loan-related expenses, not necessarily raising fees

The court accepted that the 2017 legislative amendment from "related" to "similar" was enacted as a direct response to the SACS case, and was intended to narrow the deductibility of charges that were merely connected to a loan.

However, the court drew a key distinction between:

• Fees that are merely incidental to obtaining finance, such as legal fees, advisory fees, administrative fees and similar ancillary costs; and
• Charges that form part of the lender's compensation for extending the credit itself.

In the court's view, the former category falls outside the revised definition, whereas the latter remains capable of constituting "similar finance charges".

The takeaway

The SCA’s judgment in the Cornucopia Trust case provides important and much-needed clarity on the meaning of "similar finance charges" in the context of “interest” as defined in section 24J. It confirms that the enquiry is a substantive and functional one rather than a purely formal or contractual exercise. The decision confirms that charges forming an integral part of the lender's compensation for providing credit may fall within the definition of "interest", even where they are structured as upfront raising fees.

As a result, SARS's IN 142, which adopted a far narrower view of "similar finance charges" following the 2017 amendment, will require reconsideration to accommodate the principles laid down by the SCA. Going forward, the focus is likely to be less on the label attached to a fee and more on whether, in commercial substance, it constitutes part of the cost of obtaining credit.

Contact our tax team if you need assistance with this matter.

¹_{SARS Interpretation Note No. 142 on the meaning of “similar finance charges” in the context of section 24J, dated 12 December 2025}

²_{The Commissioner for the South African Revenue Service v Cornucopia Trust (469/2025) [2026] ZASCA 116 (7 September 2026)}

³_{(131/11) [2011] ZASCA 233 (30 November 2011)}

⁴_{At paragraph 42}

⁵_{Section 24J(1) of the IT Act}

⁶_{At paragraph 38}