Page 462 - SAIT Compendium 2016 Volume2

IN 48 (2) Income Tax acT: InTeRPReTaTIon noTes IN 48 (2)
First, in the context of a disposal by a taxpayer of trading stock under an instalment credit agreement, section 24(1) provides that the whole amount, excluding nance charges, is deemed to be included in the taxpayer’s gross income at the time of entering into the agreement. This deemed inclusion prevents any argument that the proceeds under an instalment credit agreement do not accrue because of a delay in transfer of ownership.
Secondly, section 24(2) provides the Commissioner with the discretion to grant a debtors’ allowance to the taxpayer, the object of which in essence is to subject the pro t under the instalment credit agreement to tax on a cash- ow basis.
Finance charges must be recognised on a day-to-day basis over the period of an instalment credit agreement with reference to the outstanding balance under section 24J.
This Note does not apply to the allowances granted to township developers under section 24(2), namely, the debtors’ allowance and the allowance for contingent development expenditure. The debtors’ allowance does not apply to –
• sales on extended credit in the absence of a condition suspending the passing of ownership;
• sales subject to a resolutive condition, for example, when it is agreed that a sale shall be regarded as cancelled if the
purchase price is not paid by a certain date; and
• leases in terms of which the lessee has an option to acquire the goods at the end of the lease. Such an option is not an
agreement of sale, but merely confers on the holder the right to enter into such an agreement at an agreed price at a future date.
Section 24 also applies to lay-by agreements of not less than 12 months. Under a lay-by the buyer pays the purchase price over a period while the seller retains possession of the goods until the purchase price is paid in full. Ownership passes to the buyer on the date on which the purchase price is paid in full and the goods are delivered to the buyer.
3. The law Section 24
24. Credit agreements and debtors allowance.—(1) Subject to the provisions of section 24J, if any taxpayer has entered into any agreement with any other person in respect of any property the effect of which is that, in the case of movable property, the ownership shall pass or, in the case of immovable property, transfer shall be passed from the taxpayer to that other person, upon or after the receipt by the taxpayer of the whole or a certain portion of the amount payable to the taxpayer under the agreement, the whole of that amount shall for the purposes of this Act be deemed to have accrued to the taxpayer on the day on which the agreement was entered into.
(2) In the case of such an agreement in terms of which at least 25 per cent of the said amount payable only becomes due and payable on or after the expiry of a period of not less than 12 months after the date of the said agreement, the Commissioner, taking into consideration any allowance he has made under section 11(j), may make such further allowance as under the special circumstances of the trade of the taxpayer seems to him reasonable, in respect of all amounts which are deemed to have accrued under such agreements but which have not been received at the close of the taxpayer’s accounting period: Provided that any allowance so made shall be included as income in the taxpayer’s returns for the following year of assessment and shall form part of his income.
Section 9(3)(c) of the VAT Act
Section 10(6) of the VAT Act
4. Application of the law
4.1 The meaning of ‘the whole of that amount’
Section 24 applies when the passing of ownership of movable property or the transfer of immovable property is deferred until the whole or a certain portion of the selling price is received by the taxpayer. In these circumstances, ‘the whole of that amount’ payable to the taxpayer under the agreement for the disposal of trading stock is deemed to be gross income in the hands of the taxpayer on the day on which the agreement is entered into.
Section 24 is subject to section 24J. Accordingly, nance charges (interest) are not included in the expression ‘the whole of that amount’, as contained in section 24(1).
In CIR v Genn & Co (Pty) Ltd* Schreiner JA stated the following in relation to the de nition of ‘gross income’:
‘It certainly is not every obtaining of physical control over money or money’s worth that constitutes a receipt for the purposes of these provisions. If, for instance, money is obtained and banked by someone as agent or trustee for another, the former has not received it as his income. At the same moment that the borrower is given possession he falls under an obligation to repay. What is borrowed does not become his, except in the sense, irrelevant for present purposes, that if what is borrowed is consumable there is in law a change of ownership in the actual things borrowed.’
* 1955 (3) SA 293 (A), 20 SATC 113 at 123.
[W]here goods are supplied under an instalment credit agreement, that supply shall, subject to the provisions of subsection (2)(b), be deemed to take place at the time the goods are delivered or the time any payment of consideration is received by the supplier in respect of that supply, whichever time is earlier;
For the purposes of this Act, where goods are supplied under an instalment credit agreement, the consideration in money for the supply shall be deemed to be the cash value of that supply.
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