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[1]              This matter concerns the tax treatment of retail loyalty programmes that are common in South Africa.  The issue for determination is whether an allowance under section 24C of the Income Tax Act[1] is available to Clicks Retailers (Pty) Limited (Clicks), a retailer which operates one such loyalty programme.  In the 2009 tax year, when Clicks sought to claim an allowance under the section, section 24C read:

                “24C    Allowance in respect of future expenditure on contracts

(1)           For the purposes of this section, “future expenditure” in relation to any year of assessment means an amount of expenditure which the

Commissioner is satisfied will be incurred after the end of such year—

(a)          in such manner that such amount will be allowed as a deduction from income in a subsequent year of assessment; or 

(b)           in respect of the acquisition of any asset in respect of which any deduction will be admissible under the provisions of this Act.

(2)         If the income of any taxpayer in any year of assessment includes or consists of an amount received by or accrued to them in terms of any contract and the Commissioner is satisfied that such amount will be utilised in whole or in part to finance future expenditure which will be incurred by the taxpayer in the performance of their obligations under such contract, there shall be deducted in the determination of the taxpayer’s taxable income for such year such allowance (not exceeding the said amount) as the Commissioner may determine, in respect of so much of such expenditure as in their opinion relates to the said amount.

(3)          The amount of any allowance deducted under subsection (2) in any year of assessment shall be deemed to be income received by or accrued to the taxpayer in the following year of assessment.”[2]