S24J and S24O Flashcards
Rules
The issuer may only deduct the interest incurred if it is derived from carrying on a trade and
if it is incurred in the production in income
. For this reason, where interest falls within section 24J (i.e. an instrument is
present) but fails either or both of these requirements, it cannot be deducted under section 24J, nor
can it be deducted under s11(a)
S24O
Incurral of interest deemed to be in the production of income
Interest incurred on a debt taken to fund the purchase of shares would not normally be considered to
be incurred for the purposes of trade and in the production of income, because the shares will produce
dividend income, which is exempt and prohibited in terms of s23(f).
Where however the debt is incurred to finance the purchase of a controlling interest (i.e. directly or
indirectly at least 70%) in an operating company, section 24O deems the interest incurred to be for
the purposes of trade in the production of income
An operating company is one where at least 80% of the receipts and accruals of that company
constitute income (as defined, i.e. not exempt) from the carrying on of a continuous business of
providing goods and services.
Shares meeting the requirement of section 24O are referred to as a qualifying interest
Hint: In applying s24O before you jump into it please state that this wasn’t deductible under S24J
QUESTION
Required
