Prescribed VS Non-Prescribed Taxation

Prescribed annuities and non-prescribed annuities are two ways to categorize annuities based on how they are taxed in Canada. Here’s a breakdown of the key differences:

Prescribed Annuities

Tax Advantage:

The main benefit of prescribed annuities is their preferential tax treatment. Payments from a prescribed annuity are taxed differently than regular annuity payouts.

Tax on Payments:

Prescribed annuities use a formula to spread the taxation of your payments over the expected payout period. This means a portion of each payment is considered a return of your principal (not taxable) and a portion is considered interest (taxable). This results in a lower overall tax burden compared to non-prescribed annuities.

Eligibility:

Prescribed annuities can only be purchased with non-registered funds (your own personal savings, not money from RRSPs or TFSAs).

Non-Prescribed Annuities

Standard Taxation:

Payments from non-prescribed annuities are taxed like regular income. The entire amount is considered interest income and taxed at your marginal tax rate. This can lead to a higher tax bill compared to prescribed annuities.

Flexibility:

Non-prescribed annuities can be purchased with funds from various sources, including registered accounts (RRSPs) or non-registered accounts.

Here's a table summarizing the key points:

Feature	Prescribed Annuity	Non-Prescribed Annuity
Tax Treatment	Preferentia	Standard Taxation
Taxes on Payments	Spread out over time	Taxed as income entirely
Eligibility	Non-registered funds only	Can use registered or non-registered funds

Choosing Between Prescribed and Non-Prescribed:

Important Note:

Consulting with a financial advisor is crucial before choosing an annuity type. They can help you understand the tax implications in your specific situation and ensure the annuity aligns with your overall financial goals.

Home

Terms Certain Joint Life Joint Term

When To Buy Guarantees Changes & Cancellations Taxation About Us Insured Annuities

Home

Terms Certain Joint Life Joint Term

When To Buy Guarantees Changes & Cancellations Taxation About Us Insured Annuities

Home

Term Certain Joint Life Joint Term

When To Buy Guarantees Changes & Cancellations Taxation About Us Insured Annuities