Income received in advance - Can Section 24C be applied against this income? The taxpayer runs a franchise with different creches - They received the creche fees in the region of R700 000 in advance - Received in February but its for March, April and May
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
The first requirement of section 24C is that the income of the taxpayer includes or consists of an amount received by or accrued to him or her in terms of any contract.
It is likely that a contract is entered into when the parties enter into an agreement with the taxpayer and that the advance payment is made in terms of the agreement. On that basis section 24C would then apply.
From a tax point of view there will be an accrual only when there is unconditional entitlement, or in essence there is no suspensive condition. But, the inclusion in gross income happens at the earlier of receipt or accrual – as you indicated.
The section then grants to the taxpayer, a deduction of the future expenditure.
SARS issued an Interpretation Note that deals with section 24C and provides the practice generally prevailing in this regard.