Is a Living Annuity an Annuity?

A far-reaching judgment was recently given by the Cape Tax Court dealing with the fiscal consequences of a taxpayer acquiring a so-called living annuity. In particular, the taxpayer invested an amount of approximately R6million into a life annuity which gave him an initial guaranteed income of approximately R42 000 per month. These amounts could be revised annually at the insistence of the taxpayer, subject to the taxpayer being limited to directing the insurer to pay amounts equal to not less than 5% and not more than 20% annually of the total value of the "investment" so made by the taxpayer. Pursuant to the entering into of the agreement, the taxpayer was taxed on the monthly amounts on the basis of these amounts constituting an annuity.