It depends on your situation.
So 2 options here
1) If you're a trader and you do so, then you can claim the full interest amount. If you run consecutive losses then SARS will flag you and your loss will most likely be ring fenced. If you declare it as trading income, you'll be subject to s22 with opening and closing stock rules.
2) If you keep it for capital growth and you're not trading, then the 1/3 of the total interest paid will form part of the base cost of the shares.
The income will naturally be declared under code 4238 on your ITR12. If you completely omit your 4238 code and present it as trading income you set yourself up for an instant review. SARS does funny stuff on additional assessments nowadays.
If I had to see this presented to me I wouldn't allow your interest expense as a s11(a) deduction. Although it's in the production of income you'll have a ton of admin issues. One of them being that you can't set off expenses against the 4238 code. It's investment income and it's deemed capital by nature (Edit: And not trading income)
You can try to argue the 'fruits of the tree' principal if you do have to object/appeal.
I know it sucks that there isn't an exemption for REIT income - so you get taxed on it at whatever rate you're going at.
Rather go with option 2 and add the interest to your base cost when you dispose of the shares.
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