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Deducting management fees from interest income

Tuesday, 11 November 2014   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: I have an IT3(b) reflecting interest income from a number of bank accounts, as well as "management fees". Are these management fees deductible against interest income?

A: The general principle is that no deduction can be made in respect of any expenses incurred in respect of any amounts received or accrued which do not constitute income as defined in section 1(1) of the Income Tax Act – see section 23(f).  The amount of interest received is also partially exempt from normal tax and the foreign dividends partly so.  To that extent a deduction is prohibited in terms of section 23(f).  

Another requirement is of course that a deduction can only be made if the income was derived from a trade and then, if so, also only to the extent to which such moneys were not laid out or expended for the purposes of trade.  A passive investment will generally not constitute a trade.  

We are aware that SARS’s Practice Note: No 37 (13 January 1995) states the following:

"In the case of a pensioner whose financial affairs (pensions, annuities, investment income, etc.) are administered by a banking institution, board of executors or similar institution the administration fees, including any fees for the completion of tax returns, paid to the institution will qualify for deduction. … fees paid will only be allowed as a deduction to the extent that they do not create a loss.

Where the taxpayer receives income from exempt interest, other interest and dividends, the fees will be allocated on the income basis between the various sources of income.”  

Disclaimer: Nothing in this query and answer should be construed as constituting tax advice or a tax opinion. An expert should be consulted for advice based on the facts and circumstances of each transaction/case. Even though great care has been taken to ensure the accuracy of the answer, SAIT do not accept any responsibility for consequences of decisions taken based on this query and answer. It remains your own responsibility to consult the relevant primary resources when taking a decision.



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