Wednesday, March 10, 2010
Taxation
Portion of Payment Subject To Tax
Registered/Pension Funds
For annuities purchased with Registered or Pension funds, all income is 100 percent taxable.
Non-registered
For annuities purchased with non-registered funds, only the interest component of the payment is taxable.
Prescribed VS.
Non-Prescribed Annuities
(Non-registered only)
Non-prescribed annuities
Payments from a Non-Prescribed Annuity are a blend of interest and capital. The interest element is taxed as it accrues; therefore the taxation will be higher in the early years of the annuity and decrease over the life of the contract.
Prescribed Annuities
Payments from a Prescribed Annuity are treated as a
level blend of interest and capital and the interest
element is taxed on a level basis spread out over the
life of the contract. An annuity must qualify for
Prescribed Annuity taxation. The following is a partial
list of conditions that must be met:
1. The annuity must be non-registered
2. The annuity may be a Single Life, Joint and Survivor Life or Term Certain Annuity
3. Guarantee of payments may not exceed the
annuitant’s 91st birthday
Payments must commence no later than 31
December of the year after purchase
4. For Term Certain Annuities, the owner and payee
must be the same person
5. For Life Annuities, the annuitant, owner and payee
must be the same person
6. The purchaser/annuitant must be an individual (not a corporation) or a specified trust
7. Payments cannot be indexed
