BPR 369: Deductibility of interest incurred pursuant to liquidation
SARS published binding private ruling (BPR) 369 which determines that interest that arose, out of the investment proceeds of assets sold in the course of liquidation, which is paid to trade creditors, is not deductible for tax.
Reference to “sections” are to sections in the Income Tax Act 58 of 1962.
Parties:
- The applicant: A resident company in liquidation (“LiqCo”)
- The creditors: Creditors with proved claims against the company
Facts:
The company ceased trading and the liquidators commenced with its winding-up and the realisation of its assets. Resultant proceeds were invested and consequently earned interest.
The liquidators are legally required to apply the net proceeds against the capital and interest of all proven claims. The proven claims all related to trade debt. Only one of the trade debts carried any provision for interest and hence no interest was incurred by LiqCo in relation to the trade debts, with the one exception.
Ruling:
The interest payable by the liquidators will not qualify for any deduction under sections 24J or 11(a) on the basis that it will not be incurred in the production of income.
Practice Note 31 does not apply to the proposed transaction.
Find a copy of BPR 369 here.
19/11/2021
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