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Timing of tax on gift cards

Monday, 29 April 2019   (0 Comments)
Posted by: Author: Ben Strauss
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Author: Ben Strauss (Cliffe Dekker Hofmeyr)

The timing of income tax in relation to retailer gift cards was recently an issue in the interesting case in the Cape Town Tax Court, case number IT 24510, reported as A Company v The Commissioner for the South African Revenue Service (IT 24510) [ZATC] 1 (17 April 2019).

Judge Binns-Ward neatly set the scene in the opening paragraph of the judgment:

The taxpayer carries on business as a high street retailer of clothing, comestibles and general merchandise. As part of the facilities offered to its customers, it “sells” gift cards. These can be redeemed for goods at any of the taxpayer’s stores. The question in this appeal…is whether the revenue from the “sale” of the taxpayer’s gift cards during [the tax year] constituted part of its “gross income” for the purposes of the Income Tax Act [No 58 of 1962 (ITA)] as soon as it was received by the taxpayer (as contended by the Commissioner), or would become such only when the card was redeemed, or having not been redeemed, expired (as contended by the taxpayer).

In terms of s1 of the ITA, a taxpayer must include in its “gross income” all amounts “received by or accrued to or in favour of” the taxpayer. In the case it was clear that the amounts in question had not accrued to the taxpayer; the question was whether the amounts were received by the taxpayer.

Initially, until the 2013 tax year, the taxpayer had declared all of the revenue generated by the “sale” of gift cards as having been received by it and, accordingly, to be included in its gross income in the year in which the cards were issued and paid for.

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