Debtors’ allowance. In the absence of the debtors’ allowance, section 24(1) could result in adverse cash- flow consequences for a taxpayer because the whole amount under the agreement is deemed to accrue up front, while the instalments may be receivable only over an extended period. A taxpayer might, therefore, not have received sufficient cash to settle the normal tax on the gross profit.
(1) the debtors’ allowance is granted to taxpayers only in cases in which the passing of ownership of the property sold is subject to a suspensive condition, namely, payment of the whole or a certain portion of the selling price. In addition, section 24(2) provides that at least 25% of the whole of the amount under the agreement must be due and payable at least 12 months after conclusion of the agreement before the debtors’ allowance may be granted. For this purpose, any deposit payable is regarded as a payment of a portion of the selling price within the first 12 months. 5 1947 (3) SA 256 (C), 14 SATC 419 at 430. Selling price 1000 Less: Deposit (400) Less: Instalments payable within first 12 months (11 × R20) (220) Selling price payable at least 12 months after agreement signed 380 On 1 June 2016 XYZ Ltd sold a second-hand stove to C for R1 000 under an instalment credit agreement. A deposit of R400 was payable on signature of the agreement and the remaining R600 was payable in 30 monthly instalments of R20 each, which are due on the first day of each month commencing 1 July 2016. Determine whether the agreement meets the 25% requirement in section 24(2). Ignore finance charges for the purposes of the example.
