The Consumer Protection Act and tax acts : happy bedfellows?

• Pages: 19-28
• Record Number: btclq_v10_n2_a4
• Date: 01 June 2019
• DOI: 10.10520/EJC-16a8e5c252
• Published date: 01 June 2019
• Author: Des Kruger

19

© SIBER INK

The Consumer Protection Act

and Tax Acts:

HAPPY BEDFELLOWS?

DES KRUGER*

ABSTRACT

The recent judgement by Binns-Ward J in the Tax Court relating to the income

tax treatment of monies derived on the sale of gift cards has far reaching

implications. The taxpayer had not recognised the amounts derived by it from

the sale of its gift cards as part of its gross income for income tax purposes in

the tax year in which such proceeds were derived by it, Rather, the taxpayer

accounted for the proceeds as gross income in the tax year in which the

gift cards were exchanged for goods or services, or after an expiry of three

years from the date of sale of the gift cards. SARS had sought to include the

proceeds derived from the sale of the gift cards in the taxpayer’s gross income

in the tax year in which the cards were sold on the basis that such amounts

had been received by the taxpayer in that year, but nevertheless had agreed

to grant the taxpayer a section 24C allowance for future expenditure.

After a thorough analysis of the applicable provisions of the Consumer

Protection Act 68 of 2008 (‘CPA’) and the seminal cases dealing with the

meaning of ‘received’ in the context of the def‌inition of ‘gross income’, the

learned judge found that the proceeds derived from the sale of the gift cards

could not be regarded as having been received by the taxpayer until the gift

cards were exchanged for goods or services, or the three-year expiry period has

lapsed, as prior to that time the gift card monies continued to belong to the

consumer in terms of the CPA. As regards the further inclusion in the def‌inition

of ‘gross income’, namely amounts that have accrued to the taxpayer, Binns-

Ward J held that there could not be any accrual for so long as the supplier was

not entitled to the gift card monies, being when they were exchanged for

goods or services or after a lapse of three years from the date that the gift cards

were sold. It is submitted that the analysis and judgement by Binns-Ward J in

regard to the application of the provisions of the CPA in the context of gift cards

is of equal application to any prepaid tokens, vouchers, etc and deposits —

which effectively turns seminal decisions made in relation to the income tax

treatment of deposits before the advent of the CPA on their head.

While of major signif‌icance in the context of income tax, the judgment also

has application in relation to the Value-Added Tax Act 89 of 1991, in that the

general time-of-supply rule, and certain special time-of-supply rules, are trig-

gered only when the consideration for the supply is received by the supplier.

On the basis that the CPA suspends receipt of the proceeds derived from

the sale of any ‘prepaid certif‌icate, card, credit, voucher or similar device’ as

provided for in section 63 of the CPA, there is a strong argument that certain

time-of-supply rules are similarly suspended.

* Consultant, Webber Wentzel.