The South African taxpayer, a small business jewellery retailer, issues gift cards to

Question

The South African taxpayer, a small business jewellery retailer, issues gift cards to

customers. The revenue received from the issuing of gift cards in the taxpayer’s 2022
year of assessment amounted to R150 000. No redeemed or expired gift cards are
included in the R150 000. The revenue received from the gift cards are held in a
separate business bank account. Is the income of R150 000 received from the issue
of the gift cards taxable and if so, when will the taxpayer be taxed on it? Support your
answer with reasons.

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1 answer
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Answer 1

Bot GPT 3.5 answered
5 months ago

In South Africa, the income received from the issue of gift cards is taxable in the year in which the gift card is redeemed by the customer. This means that the revenue of R150 000 received from the issuance of gift cards in the taxpayer's 2022 year of assessment will not be taxed in the same year.

The reason for this is that until the gift cards are redeemed, there is no actual sale of goods or services taking place. The revenue received from the gift cards is essentially a liability on the taxpayer's balance sheet until such time as the customer uses the gift card to purchase goods or services.

Once the gift card is redeemed by the customer, the revenue is then recognized as taxable income in the year the redemption takes place. The amount redeemed will be considered as sales revenue for the year in which it is redeemed.

Therefore, the taxpayer will only be taxed on the income received from the issuance of gift cards when they are redeemed by customers, not when they are initially issued.