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South Africa: Allowance in respect of future expenditures (court decisions)

South Africa: Allowance in respect of expenditures

Two court decisions in South Africa concern the application of section 24C of the Income Tax Act—the provision that allows taxpayers to claim a deduction for an expenditure to be incurred in future tax years for the performance of the taxpayer’s obligations under a contract.


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In one case (concerning additional assessments when the South African Revenue Service (SARS) refused the taxpayer’s claim of deductions as allowances in respect of future expenditures for refurbishing and upgrading its chain of restaurants), the court concluded that the refurbishment expenditures will be incurred at reasonable intervals determined by the franchisor and that the expenses to be incurred in making the refurbishments were sufficiently certain to warrant an allowance in terms of section 24C. The court therefore found in favour of the taxpayer.

In the second case (concerning the application of section 24C allowances to a retail loyalty programme granted to customers by the taxpayer), the court found that income is earned on the same contract that gives rise to the obligation to incur future expenditures and that the future expenditures meets the requirements of section 24C.

Both cases show that in dealing with section 24C allowances, taxpayers need to consider whether the contract under which income is earned and the contract giving rise to the obligation to incur future expenditures are the same or are at least inextricably linked. In addition, taxpayers need to consider whether the obligation to incur any future expenditures is subject to certain conditions or not.

Read a January 2019 report [PDF 82 KB] prepared by the KPMG member firm in South Africa

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