n Farmer’s Weekly - How the terms of a contract can affect your tax claims - tax advice

Volume 2019 Number 19010
  • ISSN : 0041-848X


A recent decision by the Supreme Court of Appeal dealt with an interesting tax matter. The Court was asked to decide whether or not certain income had flowed from a contract, which in this case was a franchise agreement. The taxpayer maintained that the income was as a result of the franchise agreement. The tax effect of the franchise agreement depended on the interpretation of Section 24C of the Income Tax Act. The Section 24C allowance is particularly attractive, as it allows future expenditure under a contract to be deducted from the income of the taxpayer in the present year. In other words, the deduction is limited to the income earned in the present year. If there is more than one agreement, perhaps one that provides for certain rights and another one between the taxpayer and clients, then the section will not apply. The taxpayer was of the view that he qualified for this allowance. SARS held that the income the taxpayer earned had not been earned under the terms of the franchise agreement. Instead, argued SARS, it had been earned from customers. The taxpayer said he could not earn any income from customers without the franchise agreement.

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