VOUCHERS, GIFT CARDS & REWARDS PROGRAMMES – THE TAXMAN WANTS HIS POUND OF FLESH

VOUCHERS, GIFT CARDS & REWARDS PROGRAMMES – THE TAXMAN WANTS HIS POUND OF FLESH

SARS signals its intention unambiguously in a series of 2019 court cases

Very, very quietly, but most assuredly, SARS has demonstrated its undisguised intention of clamping down on the income tax treatment of non-traditional credits and vouchers for goods & services. If your business ever offers gifts cards, (virtual) vouchers, and/or operates a loyalty points programme, then this article you.

Both of the cases of interest concern taxpayers that operated a series of retail outlets, and both were concerned with issues of timing. The first of these is a judgment of the tax court (the A Co. case). It concerned a taxpayer that sold gift cards for redemption on the sale of its goods. The critical issue here was whether the revenue from the sale of the gift cards ought to be deemed as part of the taxpayers Gross Income (1) in the year in which each gift card was issued OR (2) only in the year in which each card was redeemed. [Note: while not considered by the court, this also has very interesting, intricate considerations of: VAT liability, Consumer Protection Act provisions]

The second judgment is a unanimous judgement of the Supreme Court of Appeal (CSARS v Clicks Retailers). Here, the taxpayer  operated a loyalty programme, in which “points” were awarded to (a qualifying group of) customers, based on the value of actual purchases made, and vouchers were then issued, with a Rand value, and were presentable against payment of future purchases. Those points could not be redeemed for cash. Very interestingly: the taxpayer sought to deduct an allowance from its gross income (under section 24C of the Income Tax Act) calculated on the cost of sales in honouring vouchers that it expected members to redeem in the following tax year. SARS took exception to this approach, and fought the taxpayer all the way to the very top.

In one of these cases, the taxpayer was successful, but in the other, ultimately SARS had its way. The critical point to take-away is this: non-traditional credits and vouchers for goods & services are very much in SARS’s crosshairs. VAT and CPA consequences also raise their head above the parapet, and taxpayers are advised very strongly to ensure that their tax & accounting treatment will pass muster.

Comments are closed.