The Different Permutations of CSARS v Brummeria : Was it Something Other Than an 'Interest-Free' Loan?

In Commissioner, South African Revenue Service v Brummeria Renaissance (Pty) Ltd 2007 (6) SA 601 (SCA) (Brummeria) the court held that the interest-free component of the loan between the parties was an amount which had accrued to the taxpayer, Brummeria Renaissance (Pty) Ltd. Moreover, the court found that this amount was subject to tax. The Brummeria case has been the subject of some debate.Through the debate, two distinct views on the case have emerged. These views have in common that the loan in Brummeria was not interest-free at all. Instead, the first argument is that the agreement was a variation of a mortgage agreement called a pactum antichresis, in terms of which the creditor retained possession of the mortgaged property and interest was received by that creditor in the form of the taking of the fruits of the property. The alternative hypothesis is that the 'interest-free' component of the loan was in reality a concession on the part of the retiree in the nature of rent under a lease agreement.This paper considers the feasibility of these arguments before concluding that because the facts could support either argument, the court should have undertaken a thorough enquiry as to what the true intention of the parties to the contract were before determining the tax consequences