Annuity withdrawals from a non-registered immediate or payout annuity consist of an interest portion and a return of capital portion.
In Canada, you are not taxed on the return of capital portion, but you are taxed on the interest portion. Think of annuities as the opposite of a mortgage. In a 25 year mortgage, early payments consist of mostly interest with little going towards the principle. With an annuity, the early payments you receive are mostly taxable interest and a little of your own principle.
For those individuals who can qualify, a prescribed annuity equalizes the interest income. For example, with a 25 year annuity the total interest earned is divided by 25 and spread out equally over the term of the contact. Increased after tax income in the early years is the result. There are specific rules governing prescribed annuities, If you are interested in more information, please contact me.
Income from a payout annuity may qualify for income splitting for income tax purposes. This allows you to transfer up to 50% of the taxable income earned from the payout annuity.
Missing out on the federal pension income income tax credit? Income from a payout annuity may qualify for the $2,000 non-refundable tax credit. Note: Interest earned on a Guaranteed Investment Annuity (GIA) also may qualify.
If you have further questions, or feel that I could be of assistance, please do not hesitate to contact me.
If you would like to work with a local life insurance broker, you could start with a Google search. For example, if you search for: life insurance broker Halifax or life insurance agent Halifax, my name, along with several others, will come up. You can use the same method to find a life insurance broker in your community.
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In Canada, you are not taxed on the return of capital portion, but you are taxed on the interest portion. Think of annuities as the opposite of a mortgage. In a 25 year mortgage, early payments consist of mostly interest with little going towards the principle. With an annuity, the early payments you receive are mostly taxable interest and a little of your own principle.
For those individuals who can qualify, a prescribed annuity equalizes the interest income. For example, with a 25 year annuity the total interest earned is divided by 25 and spread out equally over the term of the contact. Increased after tax income in the early years is the result. There are specific rules governing prescribed annuities, If you are interested in more information, please contact me.
Income from a payout annuity may qualify for income splitting for income tax purposes. This allows you to transfer up to 50% of the taxable income earned from the payout annuity.
Missing out on the federal pension income income tax credit? Income from a payout annuity may qualify for the $2,000 non-refundable tax credit. Note: Interest earned on a Guaranteed Investment Annuity (GIA) also may qualify.
If you have further questions, or feel that I could be of assistance, please do not hesitate to contact me.
If you would like to work with a local life insurance broker, you could start with a Google search. For example, if you search for: life insurance broker Halifax or life insurance agent Halifax, my name, along with several others, will come up. You can use the same method to find a life insurance broker in your community.