The deductibility of future expenditure on contract in terms of section 24C

[摘要] ENGLISH ABSTRACT: Section 24C of the Income Tax Act No. 58 of 1962 ('the Act') provides for a deduction offuture expenditure that will be incurred by the taxpayer in the performance of hisobligations under a contract from which the taxpayer derived income.Due to uncertainties regarding the meaning of certain words and phrases used in section24C, the first aim of this assignment was to determine the meaning of the word'expenditure' and the phrase 'will be incurred' as used in section 24C. The second aim wasto establish how a taxpayer will prove with certainty that he will incur future expenditure inthe performance of his obligations under a contract. This was done by discussing theeffect of contractual terms and other circumstances and by taking into account certainadditional guidelines regarding the interpretation of section 24C provided for inInterpretation Note: No. 78 ('IN 78').It was established that the word 'expenditure' means the amount of money spent, includingthe disbursement of other assets with a monetary value. The word 'expenditure' alsospecifically includes the voluntary payments and disbursements of assets. The word'expenditure' can also include a loss if the word 'loss' can be equated to the word'expenditure'.The phrase 'will be incurred' implies that the taxpayer will, in a subsequent year ofassessment, have an unconditional obligation to pay for expenditure, which must arisefrom the taxpayer's obligations to perform under the contract.Contractual terms and other circumstances can indicate whether there is certainty thatfuture expenditure will be incurred as aforementioned. Conditions and warranties arecontractual terms that indicate that there is uncertainty regarding the taxpayer's obligationsto perform under the contract. A time clause in a contract can indicate that there iscertainty regarding the taxpayer's obligations to perform under the contract. Similarcontracts with similar conditional obligations to perform cannot be grouped together inorder to determine the probability, and thus the certainty, that future expenditure will beincurred in the performance of the taxpayer's obligations under a contract. The probabilitythat a taxpayer will perform his unconditional obligation under the contract must, however,be proved in order to demonstrate that there is certainty regarding the incurral of the futureexpenditure.IN 78 does not specify whether a loss which can, in certain circumstances, be equated tothe word 'expenditure', is deductible under section 24C. This should be clarified. The newundefined phrases (a high degree of probability, inevitability, certainty and potentiallycontractually obligatory), as used in IN 78, might cause confusion when interpretingsection 24C. These phrases should be defined and it should be explained how the highdegree will be measured.Lastly, is was shown that an anomaly occurs regarding trading stock at hand at the end ofa year of assessment, which will be utilised in a subsequent year of assessment in theperformance of the taxpayer's obligations under a contract. Such trading stock does notrepresent 'future expenditure' and must be excluded from the section 24C allowance.However, due to the interplay between section 24C and section 22(1), the taxpayer doesnot receive any tax relief for the expenditure actually incurred to acquire the closing tradingstock in the year in which such trading stock is acquired. It is, therefore, questionedwhether the established interpretation of section 24C is in agreement with the Legislator'soriginal intention with section 24C namely, to match income received under a contract withthe related deductible expenditure.

[发布机构] Stellenbosch University