Yes, that's right: You can claim interest as a deduction in the production of income.
Let's have a look at two cases where SARS ruled that interest was deductable.
#1: CIR v Standard Bank of SA Ltd 1985 SA 428 (A) (47 SATC 179)
As in the case of CIR v Standard Bank of SA Ltd 1985 SA 428 (A) (47 SATC 179), the Practical Tax Loose Leaf Service explains that in this case the bank used a small portion of its borrowed funds to invest in redeemable preference shares (a type of share that yields dividends).
SARS disallowed the deduction of a portion of the interest that the bank paid because the preference shares yielded tax-free dividends.
SARS didn't count the raising of these shares as producing income.
Ruling: The court found that Standard Bank raised the funds to produce income; so the interest paid on all the funds borrowed was deductible.
#2: C, SARS v Scribante Construction, 2002 (4) SA 835 SCA
On, the other hand, in the case of C, SARS v Scribante Construction, 2002 (4) SA 835 SCA, the taxpayer declared a dividend, but instead of paying it to its shareholders, it retained the dividend, so that it had the necessary funds available to conduct its business operations.
Ruling: The court found the interest it paid on the ensuing loan account, was deductible.
Now these are two very unusual instances of when you can claim when you can claim interest as a deduction.
The golden rule is that you claim interest charges as a tax deduction on items you use to produce income for your business.
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