Withdrawal of practice note 31 and 37

SARS has notified the public that it intends to withdraw Practice Note (“PN”) 31 of 1994 “Interest paid on Moneys Borrowed” and Practice Note (“PN”) 37 of 1995 “Deduction of Fees Paid to Accountants, Bookkeepers and Tax Consultants for the completion of Income Tax Returns”.

Practice note 31

This is due to perceived abuse of the concession provided for in PN 31 where taxpayers have relied on the PN as a means to structure transactions or undertake transactions in order to obtain a deduction of interest or expenditure incurred, which would not otherwise have been allowed as a deduction under the Income Tax Act 58 of 1962 (“IT Act”).

As tax legislation has developed over the years, resulting in the reclassification of certain income streams to interest, this has further allowed taxpayers the deduction under the PN against the reclassified income. Transactions are structured to maximise the deduction of interest or other expenditure incurred using PN 31 whilst there is no corresponding inclusion in gross income for the recipient. This is achieved where the transactions are concluded with either exempt or non-resident taxpayers.

Ideally, minor amendments to the wording of PN 31 may serve to curb the abuse perceived by SARS and eliminate the need for PN 31’s withdrawal. It is certainly Mazars’ intention to put forth comments to this effect in the interest of preserving PN 31 which has been a cornerstone of the SA tax landscape for nearly 30 years.

Practice note 37

In its current form, PN 37 does not incorporate the requirements of the Tax Administration Act 28 of 2011 (“TA Act”) which provides that only persons that are “registered tax practitioners” may provide tax advice or assist in completing a tax return for a fee.

The intention is to withdraw the Practice Notes for years of assessment commencing on or after 1 March 2023.

Comment is invited by 15 December 2022 and should be sent to policycomments@sars.gov.za.

Find a copy of the notice here.

18/11/2022