Section 24(1) of the Income Tax Act[1] deals with an agreement between a taxpayer and another person in respect of movable or immovable property. In the case of immovable property, the effect of the agreement must be that transfer of the property shall be passed upon or after the receipt by the taxpayer of the whole or a portion of the purchase price payable under the agreement. In these cases, section 24(1) determines that the whole amount shall be deemed to have accrued to the taxpayer on the day on which the agreement was entered into.

In the recent case of Milnerton Estates Ltd v CSARS[2], the Supreme Court of Appeal had to consider the application of section 24(1) to the purchase price of erven in a township which were sold by the developer (Milnerton Estates). In this case, sales occurred in one tax year and all suspensive conditions were fulfilled in that year. The purchasers furthermore either deposited the purchase price in cash with the conveyancers or provided a guarantee from a financial institution for the payment of the purchase price. However, the transfer of these properties was only registered and the purchase price received in the following year. The Court, therefore, had to determine whether the purchase price deemed to have been accrued in the year in which the sale agreements were concluded for purposes of section 24(1).

The taxpayer argued that its entitlement to the purchase price remained conditional on its performance of the remaining tasks to effect transfer into the names of the purchasers. Also, that section 24(1) is not concerned with cash sale agreements of this type, but only with agreements for the sale of immovable property on credit.

SARS contended that the transactions met the requirements of section 24(1) and, notwithstanding that the common law principles might have given rise to a different outcome, the income from the sales was deemed to accrue to the taxpayer on the date of the agreements.

The Court felt it unnecessary to discuss the question of whether there was an accrual in accordance with general principles as the judgement in Silverglen Investments[3] on the effect of section 24(1) was binding authority on this point.

The Court found that the guarantees provided by the purchasers constituted payment concurrent with the transfer of ownership by registration with the Deeds Registry. The purchase price was therefore deemed to be received in its entirety in the year in which the contracts were concluded and that all the requirements of section 24(1) were met.

[1] 58 of 1962

[2] (1159/2017) [2018] ZASCA 155 (20 November 2018)

[3] Inland Revenue v Silverglen Investments (Pty) Ltd 1969 (1) SA 365 (A)

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Section 24 – credit agreements and debtors’ allowances