Does the label on a contract determine its tax consequences? The Western Cape High Court considered this question in CSARS v Meiring Citrus (Pty) Ltd (A161/2025, 26 June 2026). The judgment deals with a product that was called insurance but, in the court’s view, did not constitute insurance. In this article I discuss the court’s reasoning and what persons who work with tax regularly should take from this.

The arrangement and dispute

Meiring Citrus is a citrus farming company. The business faces risks such as black spot fungus and pests that lay eggs in the fruit, which can ruin a harvest. To protect itself, it took out a product from Santam that witnesses described as a self-insurance product.

The company paid a premium of R10 million. Santam allocated R400 000 to an underwriting fee and R9.6 million to an experience account. The policy covered losses of up to R12 million. Claims first reduce the experience account. Thereafter Santam bore the remaining R2.4 million of losses from the insured risks once the experience account was exhausted. The balance of the experience account, plus interest, was repayable to Meiring Citrus on expiry or cancellation of the policy. The company could cancel at any time.

Meiring Citrus deducted the R10 million premium under section 11(a) of the Income Tax Act. SARS disallowed the deduction. The dispute involved (a) whether SARS was allowed to issue the additional assessment under section 99 of the Tax Administration Act and (b) the deductibility of the premium.

Was it insurance?

Before dealing with deductibility, the court asked what it called the insurance question: was this arrangement insurance in law? It applied the established approach to interpretation. This involves considering the text, context, and purpose of the document; adopting a commercially sensible meaning; and having regard to the intention of the parties and the whole factual matrix surrounding the transaction.

In applying this approach to interpret the policy, the court considered the contract against the essentialia of insurance. An insurer must assume risk from the insured. It does so by distributing losses among persons exposed to the same or similar risks, and the premium is the insured’s contribution to that pool.

The court concluded that this policy was not insurance but akin to an investment. It found that the risk of the first R9.6 million of losses did not pass to Santam. A claim reduced the eventual refund of the experience account. The insurer only assumed the further R2.4 million of risk, in exchange for the underwriting fee. The court further noted several odd features of the policy. These included that the insured could adjust the premium and the insurer did not perform any real risk analysis. It also noted that the insured could could pledge the policy as security, and interest accrued on the experience account.

Simulation, not sham

The court held that the product’s label as insurance was deliberate and misleading to avoid tax. The deduction allowed the taxpayer to reduce its taxable profit by an amount it determined itself and effectively roll that profit forward until the policy expired.

The court concluded that the contract was not a sham because the parties performed in terms of it. The High Court took the view that the Tax Court conflated the sham enquiry with the interpretation of the agreement. Despite not being a sham, the High Court treated the matter as one of simulation, which it viewed as depending on a question of the genuineness of the intention. Where the intention to insure is genuine, the courts will give effect to it. Where it is not, the courts would give effect to the true underlying transaction, and tax the transaction accordingly. 

Take-home message

In my view, the lesson from this element of the judgment reaches beyond the question in this case – i.e. whether the policy was insurance or not. It highlights the fact that in some instances it is necessary to look past the label on any document or arrangement when you determine its tax implications. This requires a proper understanding of what the transaction actually is and does. If, for example, an agreement is called a lease but does not look or work like a lease, then you need to ask critical questions before arriving at the tax implications. Often, it is necessary to look at the agreement, as well as documents like correspondence, invoices, or statements that flow from its implementation, when something in the agreement looks odd. 

I discuss this aspect of the judgment in episide 84 of my podcast, Tax Break. You can listen at this link: