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

Clicks Retailers (Pty) Ltd operates a nationwide retail business with a loyalty programme (ClubCard). Customers who apply for and receive a ClubCard earn one loyalty point for every R5 spent. Upon accumulation of at least 100 points within a qualification period (reward cycle), Clicks issues a voucher worth R10 per 100 points. Vouchers can be used in part payment for future purchases but cannot be redeemed for cash. During the 2009 financial year, Clicks claimed an allowance of R44,275,965 under s 24C of the Income Tax Act 58 of 1962, calculated on the basis of the cost of sales to honour vouchers expected to be redeemed in the following tax year. SARS disallowed the claim, and Clicks objected and appealed to the Tax Court, which upheld the appeal. SARS then appealed to the Supreme Court of Appeal.

• Whether the allowance claimed under s 24C of the Income Tax Act 58 of 1962 met the statutory requirements
• Whether the income received and the future expenditure to be incurred arose from the same contract as required by s 24C
• Whether the ClubCard contract, the first sale contract (generating income and points), and the second sale contract (redeeming vouchers) were the same contract or separate contracts for purposes of s 24C
• The proper interpretation of 'in terms of any contract' and 'in the performance of his obligations under such contract' in s 24C

The appeal was upheld with costs including costs of two counsel. The order of the Tax Court was set aside and replaced with 'The appeal is dismissed.'

For a taxpayer to qualify for an allowance under s 24C of the Income Tax Act 58 of 1962, both the income received and the future expenditure to be incurred must arise from the same contract. Where a loyalty programme involves multiple contracts—a ClubCard contract establishing the programme, a first sale contract generating income and earning points, and a second sale contract where vouchers are redeemed—the income (from the first sale) and the obligation to incur expenditure (honoring vouchers under the ClubCard contract) do not arise from the same contract. The fact that contracts may be 'inextricably linked' is insufficient to satisfy the statutory requirement of 'the same contract.' The ClubCard contract creates the right to receive points and vouchers and imposes the obligation on the retailer to award and honor them; this obligation does not arise from the individual sales contracts.

Wallis JA (in a concurring judgment) expressed reservations about whether conventional stock purchases could constitute 'expenditure' as contemplated by s 24C, noting that there must be a direct connection between the amount received and the performance of the contract. His Lordship observed that loyalty programme discounts are similar to pensioners' discounts or sale discounts, which do not involve expenditure in the s 24C sense but merely reduced revenue. However, given a concession in the stated case and the fact that this was not fully argued, Wallis JA did not decide the matter definitively. Wallis JA also explained that s 24C was introduced to alleviate the tax burden on builders and manufacturers receiving advance payments, not to allow taxpayers to manipulate the timing of tax payments by making provisions for general future expenditure. The judgment noted that the outcome of the Constitutional Court application for leave to appeal in Big G would not affect the outcome of this case, as the issues were different.

This case clarifies the interpretation of s 24C of the Income Tax Act 58 of 1962 (as it stood in 2009) regarding allowances for future expenditure. It establishes that the 'same contract' requirement is strict and cannot be satisfied by merely linking separate but related contracts. The judgment is significant for tax treatment of loyalty programmes and similar arrangements involving multiple contractual relationships. It reinforces the principle established in CSARS v Big G Restaurants that s 24C applies only where income and future expenditure arise from the same contract, not from a series of interconnected contracts. The case also demonstrates the importance of the original purpose of s 24C—to address the tax burden on advance payments in building and manufacturing contracts—rather than allowing deductions for general future expenditure. The decision has implications for retailers operating loyalty programmes and the tax treatment of customer rewards schemes.