Abstract
Section 24C of the Income Tax Act No. 58 of 1962 provides for a deduction of future expenditure that will be incurred by the taxpayer in the performance of his obligations under a contract from which the taxpayer derived income. The objective of this article is to compile a list of indicators demonstrating when there will be certainty that future expenditure will be incurred as aforementioned. The conclusion reached is that a definite connection must exist between the incurral of the future expenditure and the obligation to perform under the contract. Further, conditions and warranties are contractual terms that indicate that there is uncertainty regarding the taxpayer’s obligations to perform under the contract. A time clause in a contract and a high probability that the taxpayer will perform an unconditional obligation under a contract, however, both indicate that there is certainty regarding the incurral of future expenditure. A contingent liability to pay for future expenditure or if the future expenditure is unquantified are not indicators as to whether there is certainty that the future expenditure will be incurred.
Highlights
The first objective of this article is to compile from Tax Court cases, authoritative academic literature and IN 78 a list of indicators demonstrating when there is certainty that future expenditure will be incurred by the taxpayer in the performance of his obligations under the contract
This article provides clarity regarding the required certainty that future expenditure will be incurred by the taxpayer in the performance of his obligations under the contract
The first objective of this article was to compile a list of indicators demonstrating when there is certainty that future expenditure will be incurred by the taxpayer in the performance of his obligations under the contract
Summary
The first objective of this article is to compile from Tax Court cases, authoritative academic literature and IN 78 a list of indicators demonstrating when there is certainty that future expenditure will be incurred by the taxpayer in the performance of his obligations under the contract. A second objective is to determine whether the guidance provided in IN 78 relating to the certainty that future expenditure will be incurred by the taxpayer in the performance of his obligations under the contract is in agreement with previous established principles This is significant because an Interpretation Note is merely SARS’s interpretation of a provision in the Act and does not have the force of law (Stiglingh et al, 2014:13).
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