Clicks Retailers (Pty) Ltd v CSARS (CCT 07/20) [2021] ZACC 11 (21 May 2021)

Facts

Clicks operates a ClubCard loyalty programme for its customers. This ClubCard loyalty programme is free of charge, and allows participating customers to accumulate loyalty points on Clicks purchases, which can be set-off against the cost of Clicks products, or against purchases at one of Clicks’ affinity partners.

In 2009, Clicks claimed tax allowances for future expenditure in terms of section 24C of the Income Tax Act ("the Act"), on the cost of such future products that will be provided to customers on redemption of their ClubCard loyalty points.

In broad terms, Clicks claimed the section 24C allowance on the following basis:

When a loyalty programme member makes a purchase above the stipulated value threshold at a Clicks store and presents her ClubCard at checkout, a contract of sale is concluded and income accrues to Clicks. By doing so, the member earns loyalty points which can later be redeemed for Clicks merchandise. This imposes an obligation on Clicks to finance future expenditure, as envisaged in section 24C, in that it must later give away (for no further consideration) stock to the value of the loyalty points when the points are redeemed.

In Clicks' view, the contract of sale could not be viewed as an independent contract for purposes of the loyalty programme. The reason being that the contract of sale is "a performance requirement" in terms of the ClubCard contract to the extent that if a customer does not conclude a sale contract, the loyalty programme is rendered a nullity.

Issues

In order to meet the requirements of section 24C and obtain a tax allowance, a taxpayer must have received income in a year of assessment, in terms of a contract, and such amount must be utilised to finance future tax-deductible expenditure which will be incurred by that taxpayer to fulfill its obligations under the same contract. The Constitutional Court, therefore, had to consider the following:

Issue 1: Whether the ClubCard loyalty programme expenditure qualifies for a deduction under section 24C;

Issue 2: The impact on Clicks' case of the SCA and Constitutional Court decisions in the cases of Big G Restaurants;

Issue 3: Whether the three requirements of section 24C(2) were met by Clicks; and

Issue 4: Whether the two contracts on which Clicks based its section 24C allowance can be seen to have contractual "sameness" and are "inextricably linked", per the Big G Restaurants decisions. 

Finding

The court found that there was a "significant factual overlap and nexus" between the two contracts and that a "functional relationship" and a number of legal links existed between the two. However, in their view, at a minimum, the earning of income and the obligation to incur future expenditure must be dependent on both contracts. Where either contract can be entered into and come into existence without the other, contractual "sameness" cannot be achieved, and the requirements of section 24C will not be met.

The court held that the sale contract did not owe its existence to the ClubCard contract, and vice versa, and accordingly, that the two contracts viewed together were too independent to be seen as having contractual "sameness". Accordingly, the requirements of section 24C(2) were not met.​

The appeal was dismissed.

Find a copy of the court case here.​

04/06/2021