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ITC 11135 – What is an annuity? Saul Gewer. Facts : lAppellant was a pensioner lFund offered to enhance the pension of those pensioners who agreed to.

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Presentation on theme: "ITC 11135 – What is an annuity? Saul Gewer. Facts : lAppellant was a pensioner lFund offered to enhance the pension of those pensioners who agreed to."— Presentation transcript:

1 ITC – What is an annuity? Saul Gewer

2 Facts : lAppellant was a pensioner lFund offered to enhance the pension of those pensioners who agreed to transfer their pensions into their own names (GN18 outsource) lAppellant elected to purchase a living annuity through an insurer lA policy contract was concluded with the insurer

3 Terms of the policy contract lOn the death of “A”, the remaining capital would be paid to beneficiaries lMonthly income taxable and subject to PAYE lThe insurer was authorised to act as “A”s ‘agent’ in placing the investments in the market lAlthough investments bought in the name of the insurer, it was agreed that they did not belong to the insurer

4  “A” contended that the monthly amounts were not “annuities”  Wanted to be taxed only on the interest earned on capital Gross income definition: “Total amount, in cash or otherwise, received by or accrued to or in favour of a resident, …. excluding receipts of a capital nature, but including …. (a) Any amount received or accrued by way of an annuity …”

5 So what is an annuity? Court looked at the case law: lIn return for the sale of an asset, an income stream is received lThe principal disappears and an annuity takes its place “A man may sell his property for what looks like an annuity, but you can see quite well from the transaction that it is not really the transmutation of a principal sum into an annuity, but it is a principal sum of payment which is being spread over a time and is being paid with interest”

6 lCharacteristics: –An annual payment –Repetitive –Chargeable against a person lThe test – does the principal continue to exist as a debt or is it liquidated when the transaction takes place. If it is liquidated the payments constitute an annuity

7 Decision lThe agreement between the member and the insurer was for the return of capital and interest until the capital is exhausted lThe capital was therefore never converted into an annuity lThe appellants tax assessment set aside, to be taxed on only the interest portion äFacts of the case distinguishable?


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