Statutory Inclusions in Gross Income - Annuities

Question 1

Important Cases

Answer 1

SIR v Watermeyer

KBI v Hogan

Question 2

SIR v Watermeyer

Answer 2

Summary

a University continued to make voluntary payments to the widow of a deceased professor. These payments were approved and paid out annually.

Outcomes

The amounts did not constitute an annuity as they were ex gratia payments.

Principles

For an amount to be an annuity there must be an element of recurrence and the taxpayer must have a right to the payments. Therefore a taxpayer must have a right to at least more than one such payment.

Question 3

KBI v Hogan

Answer 3

Summary

The taxpayer was injured in an Motor Vehicle Accident and claimed damages from the MVF. The claim was settled and the Fund undertook to pay him a monthly amount for the duration of his life should his disability persist.

Outcome

The monthly payments to Hogan was an annuity and had to be included in gross income.

Principles

The court recognised that periodic payments can be of a capital nature if there is a fixed amount reduced by instalments. Decisive in this case was the fact that no such fixed sum existed. The payments were to endure for the duration of his life as long as his disability persisted and were to lapse on his death. There was no principle debt to be extinguished.