3.2 Exempt Annuities (7) Flashcards
Exempt annuities – s 10A
Exempts the capital element of an annuity amount (monthly and lump sum) which is received under an annuity contract.
Annuity amount is defined as
An amount payable by way of annuity under an annuity contract and any amount payable in consequences of the commutation or termination of any such contract
The basic principles of annuities are:
- An agreement between an insurer and a purchaser
- The purchaser pays a lump sum of money to insurer
- Who invests this money in a fund to ensure future growth
- The insurer makes regular payments, usually monthly, to the purchaser from date agreed on
- These payments can be made either till death of purchaser or for a specified time period
Section 10A has the effect of dividing the
Annuity received into a capital and an income portion.
Revenue portion included and the capital portion will be exempt.
Exempt capital amount = Y = A / B x C
A = the lump sum paid by purchaser
B = The total expected returns
C = the amount of the annuity
Section 10A(3) also exempts a portion of the
If annuity is terminated the insurer pays back the lump sum, this amount is less than original since part has been paid back already.
To calculate portion of lump sum that is exempt: X = A - D
X = the exempt amount
A = the amount originally paid for the annuity contract
D = the total of the previously exempt portions of the annuities received under the contract
Compulsory annuities – s 10C
A compulsory annuity is defined as the remainder of the retirement interest payable as an annuity, being the annuity from a pension, pension preservation and retirement annuity fund.
Exempts portion – that persons own contributions to any pension, provident or retirement annuity fund that was not deductible in terms of s 11F
In terms of Interest accruing to non-residents s 10(1)(h), Section 10(2)(b) provides that
This exemption does not apply to interest paid by way of an annuity.
