Clicks Retailers (Pty) Limited v Commissioner for the South African Revenue Service

Clicks Retailers operates a loyalty programme (Clicks ClubCard) where participating customers receive loyalty points for shopping that can be translated into cash back vouchers redeemable against Clicks merchandise. Customers must apply for membership and agree to terms. For every R5 spent on qualifying purchases (minimum R10), customers earn one loyalty point. Affinity partners (Discovery, Nu Metro, Specsavers, etc.) also participate. For the 2009 tax year, Clicks included approximately R58.5 million in gross income as "ClubCard deferred income" and claimed an allowance of approximately R36.18 million for future expenditure under section 24C of the Income Tax Act. Clicks argued that when a customer makes a qualifying purchase and presents their ClubCard, income accrues under the contract of sale, which triggers an obligation to finance future expenditure (providing discounted/free merchandise when points are redeemed). The Commissioner disallowed the deduction, maintaining that section 24C requires income and the obligation to finance future expenditure to arise from the same contract. Here, income arose from the sale contract while the obligation arose from the ClubCard contract.

• Whether Clicks is entitled to claim an allowance under section 24C of the Income Tax Act in respect of income earned through its loyalty programme
• Whether the 'same contract' requirement in section 24C(2) is satisfied where income accrues under a contract of sale and the obligation to finance future expenditure arises under a separate ClubCard contract
• What constitutes 'sameness' for purposes of section 24C(2) following the Constitutional Court's decision in Big G
• Whether contracts that are 'inextricably linked' satisfy the requirement of contractual sameness under section 24C(2)

1. Leave to appeal is granted. 2. The appeal is dismissed. 3. The applicant shall pay the respondent's costs, including the costs of two counsel.

For purposes of section 24C(2) of the Income Tax Act, contractual sameness requires that both the earning of income and the obligation to finance future expenditure must depend on the existence of both contracts. If either contract can be entered into and exist independently without the other, they cannot achieve sameness. Contracts that are 'inextricably linked' may satisfy the sameness requirement only if the link is such that the contracts are mutually dependent - neither can exist or function without the other. Where income accrues under a contract of sale and the obligation to finance future expenditure arises under a separate membership/loyalty contract, and each contract can exist and function independently, the contracts do not meet the requirement of sameness under section 24C(2), even if they are factually and operationally connected within the context of a loyalty programme.

The Court noted that the Commissioner initially sought to argue that Clicks' obligation was merely contingent and therefore did not qualify for section 24C allowance, but the Tax Court correctly rejected this as it was not the basis of the disputed assessment and had not been pleaded. The Commissioner did not pursue this argument in the Constitutional Court. The Court observed that the interpretation of contracts is a matter of law, not fact, and this interpretive question is closely bound up with the interpretation of section 24C(2) itself. The Court acknowledged that common law rules are developed incrementally through their application to novel factual scenarios, and this case required the Court to 'put meat on the bones' of the sameness test introduced in Big G in the context of inextricably linked contracts.

This case clarifies and applies the Constitutional Court's decision in Big G Restaurants regarding section 24C of the Income Tax Act. It establishes important guidance on what constitutes 'sameness' for purposes of claiming deferred income allowances where contracts are interlinked but distinct. The judgment is significant for retailers operating loyalty programmes and confirms that being 'inextricably linked' is a necessary but not sufficient condition for contractual sameness - the contracts must be mutually dependent for their existence and operation. The decision has implications for numerous South African retailers operating similar loyalty programmes including Pick n Pay, Dis-Chem, Ster Kinekor and Exclusive Books.