Question:
Ryan is 30 years old. He took out a life annuity with a consideration value (capital amount) of R150 000. The annuity contribution is R5 600 p.a. What would be the deduction which he could claim for income tax purposes for a full year?
Answer:
Elzette, It is not clear what you mean by "life annuity". This traditionally refers to a cash lump sum payment in return for a series of future payments. A deduction is then permitted in terms of the capital paid for the annuity. The formula to determine the deductible amount pa is as follows (in your case): R150 000/(R5 600 x no of years to be paid) x R5 600. If the amount is to be paid for life, the "number of years" will be determined with reference to the life expectancy tables. In the event that you referring to a retirement annuity with a life cover component, the allowable deduction is the greater of: - 15% of non-pensionable income - R3 500 less current deductions to a pension fund; or - R1 750
