Ticktin Timbers CC v Commissioner for Inland Revenue

Ticktin Timbers CC, a close corporation with a sole member, Dr David Ticktin, sought to deduct interest paid on a loan account in favour of Dr Ticktin for the 1985–1989 tax years. Upon converting a private company into a close corporation, distributable reserves and subsequent annual profits were credited to Dr Ticktin as distributions. These amounts were simultaneously left in the business as interest-bearing loans to finance operations. Dr Ticktin had acquired the business through a loan from family trusts and structured the transaction so that he would earn interest from the corporation, enabling him to service his personal acquisition debt. The Commissioner disallowed the deduction of the interest under sections 11(a) and 23(g) of the Income Tax Act 58 of 1962.

The appeal was dismissed with costs. The Commissioner’s refusal to allow the deduction of interest was upheld.

The case is a leading authority on the deductibility of interest under sections 11(a) and 23(g) of the Income Tax Act. It clarifies that interest on loans linked to profit distributions, particularly in closely held entities, is not deductible where the true purpose of the borrowing is to enable a distribution rather than to produce income. The judgment emphasises substance over form and the importance of examining the real purpose and interdependence of transactions.