Tax Focus Newsletter

An Intermission of Relief: Practice Note 31 Withdrawal Postponed.

Mzwandile Mashinini
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In November 2022, SARS announced its plan to remove Practice Note 31 (PN31) starting from March 1, 2023. This will affect assessment years that begin after that date, which will provide a sense of relief among taxpayers. More insights below.
In this article

This article discusses the proposed withdrawal of a provision related to interest deductions in income tax.

The Provision known as Practice Note 31

The withdrawal is postponed until 2024 to allow for potential legislative amendments. The provision, known as Practice Note 31, allowed companies to deduct interest expenses incurred for earning interest, even if it didn't align with their trade activity. It aimed to tax only the margin between interest paid and earned.

Why is SARS removing this provision?

The South African Revenue Service (SARS) plans to remove this provision due to its misuse. Some entities and taxpayers have exploited the concession to claim deductions that are not allowed. This includes structuring transactions to maximize deductions without corresponding income inclusion and using debt funding for non-income-producing assets or activities. A draft tax legislation for 2023 has been released, proposing a new section, 11G. This new section allows for income tax deductions for expenses incurred by a company in generating interest income from another group company, with specific requirements to be met.

Stakeholders have until August 31, 2023, to provide their comments on this draft legislation.

The new proposed deduction 

Under the new proposed deduction, section 11G, a company will be allowed to claim a deduction, limited to the interest income, for expenditure incurred in the production of interest income accruing from another group company (as defined) if the following requirements are met:

  • The expenditure incurred by that company must be in respect of amounts owing for purposes of providing funding directly or indirectly to one or more companies that form part of the same group of companies as that company; and
  • The deduction of the expenditure incurred by that company during any year of assessment must be limited to the interest income accruing from that other company during that year of assessment.


In summary, to delay the withdrawal of PN31, it is crucial to fully understand the consequences and potential effects on taxpayers. This calls for a thorough reassessment of borrowing practices and their alignment with income generation, as well as careful anticipation of legislative changes. As the future brings about changes, it is important for both taxpayers and professionals to stay informed and make wise financial decisions in a constantly evolving fiscal landscape.