Clicks Retailers (Pty) Ltd, the respondent, owns and operates the well-known Clicks retail business at stores nationwide. Some years ago it instituted a Loyalty Program in terms of points were awarded to members who owned a Clicks ClubCard when making purchases. The accounting and the tax treatment of purchases made using the ClubCard with its accrued benefits attractive to members, all of which drew the attention of the appellant, the Commissioner of South African Revenue Services ["CSARS"]. After conducting an audit the CSARS disallowed Clicks’ claim to an allowance in terms of s 24C(2) of the Income Tax Act 58 of 1962 ("Act") however on appeal the appellant succeeded. The appeal by the Commissioner was hence with his leave. During shopping, a member produced their card and for every R5.00 spent he or she earned one loyalty point. In order to qualify for the voucher, the customers was required to accumulate at least 100 club card points by an express qualification date. There were four qualification periods during which the minimum points had to be earned (6 October-5 January; 6 January – 5 April; 6 April – 5 July; 6 July – 5 October). These periods were referred to as reward cycles. Points could be earned and vouchers redeemed however the voucher could not be redeemed for cash. During the 2009 financial year, Clicks claimed an allowance of R44 275 965 due to be deducted from its gross income based on s 24C of the Act and Clicks expected members to redeem in the following tax year. The Commissioner disallowed the claim to the allowance as per the Act.

Tax obligation curially held on received Club Card Income not sales or services

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In CSARS v Big G Restaurants* this court held that in order to qualify for the allowance the income received and future expense to be incurred, must arise from the same contract. In my view, the ClubCard contract between the customer and Clicks, establishes the right of the customer to receive points and thereafter vouchers as well as the obligation on Clicks to award points and vouchers to the customer, redeemable against subsequent purchases. This is how Clicks itself described the position on 29 July 2012. Clicks stated in order to earn points that could be converted into the Rewards voucher the customer had to a) make purchases and b) present their ClubCard at the checkout. Clicks explained that under these purchases, income accrued to it as the taxpayer. Contrary to its present submissions it then said that this revenue was ‘a direct result of the contract entered into when the ClubCard member joined the loyalty programme’. The appellant argued there was no separate contract of purchase and sale relating to the good purchased and that the customer’s presentation of the ClubCard when paying at the till-point was inextricably interwoven with and an integral part of every purchase and sale of goods transaction, entered into by the member. Clicks argued that no exigible obligations were imposed upon Clicks at all barring when the qualifying contract was concluded the obligation was then to issue vouchers so that the member might acquire points. The Commissioner interposed with the fact that all of three contracts [first, second and ClubCard were required in order for the customer to acquire vouchers and further for Clicks to receive income, were obliged to award vouchers and obliged to supply merchandise to the customer in return. The appeal was thus dismissed.

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Vide - In the matter of - The Commissioner for the South African Revenue Service v Clicks Retailers (Pty) Ltd [2019] ZASCA 187; CSARS v Big G Restaurants (Pty) Ltd [2018] ZASCA 179, 2019 (3) SA 90 (SCA).

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