A client acquired a new property by means of a bonded loan. The loan statement has bond initiation fees of R70,000. Does this bond initiation fee form part of the base cost of the new property or is it tax deductible for income tax purposes? This same cli
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
Initiation fees are dealt with in paragraph 20(2) of the Eighth Schedule to the Income Tax Act. We copied it for ease of reference below:
“The expenditure incurred by a person in respect of an asset does not include any of the following amounts—
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borrowing costs, including any interest as contemplated in section 24J or raising fees;
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expenditure on repairs, maintenance, protection, insurance, rates and taxes, or similar expenditure; and
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the valuation date value of any option or right to acquire any marketable security contemplated in section 8A (1),
other than borrowing costs and expenditure contemplated in subparagraph (1) (g).”
Under paragraph 20(1) of the Eighth Schedule, the base cost of an asset acquired by a person is the sum of –
(c) the following amounts actually incurred as expenditure directly related to the acquisition or disposal of that asset namely –
(i) the remuneration of a surveyor, valuer, auctioneer, accountant, broker, agent, consultant or legal advisor, for services rendered;
So, it includes the valuation fee, but it doesn’t apply in your scenario.
SARS’s view is that “bond registration and cancellation costs are excluded from base cost under para 20(2), since they represent a borrowing cost.”
The deduction is then made in terms of section 24J(2) of the Act.