Archive | November 2010

Understanding the RAF Amendment Act Part 2

Is the cap applicable only to a deceased breadwinner’s income or to the income of the household?

In explaining the above we will make use of the following example: A man dies in a motor vehicle collision, at the time of his death he was earning R 200 000.00 per annum, he leaves behind a wife and two children. The wife also earns R 200 000.00 per annum at all relevant times.

The immediate question that comes to mind is do I cap their respective earnings separately or combined?

However the above reasoning is not in keeping with the aim of the amendment act cap. The important thing to remember is that the cap applies to the loss in future years and not to income as implied by the above reasoning. Therefore, one will do the calculation as normal by determining the combined household income and distributing shares to the deceased and claimants/dependents in line with Santam v Fourie.

Using our example the combined income of R 400 000.00 per annum will be divided into six shares with two shares each allocated to the deceased and surviving spouse and one share each to the dependent children. The value that is then subject to the cap would be the combined sum of the 4 shares of the surviving spouse and two dependent children. Again allowance has to be made for tax, mortality and discount rate.

Next month I will continue with this new series on understanding the application of the RAF amendment Act.

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