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Low Tax Prescribed Annuity Income

Low tax prescribed annuities can only be purchased with non-registered, after-tax funds or from savings held within your Tax Free Savings Account (TFSA.)

This means that you can’t use registered funds from your Registered Retirement Savings Plan (RRSP) or Locked-In Retirement Account (LIRA) to purchase a low tax prescribed annuity.

If you only have registered funds, unfortunately there aren’t any low tax options available. Please visit the Single Life & Joint Life sections on our website to learn more about the annuities that are available to you.

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What Is A Low Tax Prescribed Annuity?

A prescribed annuity is a special life annuity that is purchased with non-registered fund and provides its owners with a huge tax advantage.

Similar to most annuities, prescribed annuity payments are set for a specific and level dollar amount and consist of a blend of taxable interest income and tax exempt return of capital which is determined at the time of purchase.

What makes prescribed annuities so beneficial to Canadian retirees is the fact that the taxable interest income that you are anticipated to earn in your lifetime based on your annuity contract terms and the Annuity 2000 Basic Mortality Table, is spread evenly over your lifetime instead of being taxed as earned.

This spreading of taxable interest income over many years is a form of tax deferral in the early years that you receive income from a prescribed annuity.

This means that the prescribed annuity owner receives an income stream that has a larger tax exempt return of capital (ROC) portion and a much smaller taxable interest income portion early in retirement, which ultimately results in an increase in spendable income early in retirment because less of your money is sent to the Canada Revenue Agency in tax.

An added benefit that is often overlooked is that the clarity of taxable income may enhance a Canadian retiree’s ability to participate in Government Benefit Optimization planning, there by allowing them to ensure that they are receiving the most from the income tested government programs including provincial pharmacare programs, senior’s health and dental benefits, the Guaranteed Income Supplement(GIS) and more.

If your income is very close to the eligibility cut off for these programs, you may want to investigate if a prescribed annuity could help you qualify or retain your qualified status.

The lower taxable portion may help higher income Canadian retirees, widows and widowers who want to minimze the Old Age Security (OAS) clawback or risk of triggering the OAS clawback if their income is close to that level.

Who Buys Low Tax Prescribed Annuities?

Canadians who require additional guaranteed monthly income and are intent on minimizing their taxable income.

After the death of a spouse, minimizing taxable income is critical in maintaing government benefits and quality of lifestyle. Single seniors have fewer tax deductions than when they were married and can no longer income split with their spouse. It is for this reason that most prescribed annuities are purchased by widows or widowers in their late 70’s or early 80’s.

Most of the government benefit programs available to Canadian retirees are income tested. This means that you are either partially or fully disqualified from particpating in these programs if your tax able income exeeds a threshhold amount.

Old Age Security and Guaranteed Income Supplement are the most common income tested federal government retiree benefits. Provincially, most pharmacare and seniors benefits including long-term care in nursing homes is income tested.

If you are close to the qualification cut off threshhold an unexpected dividend from an investment or the effect of the escallating legislated Registered Retirement Income Fund (RRIF) payment schedule based on attained age may cause you to lose some or all of your benefits over time.

Canada Pension Plan (CPP) is not income tested because it is based on the CPP contributions you and your employer made during your working life. For example self-employed business owners who take their accountant’s advice to only receive dividend income from their business and therefore never paid CPP premiums, will not receive any CPP in retirement.

As part of your retirement income planning, it is wise to examine all of the government benefits you may qualify for in your province and structure your finances to maximize your benefits by minimizing your taxable income.

Prescribed annuities are one tool that assists in minimizing taxable income for this purpose.

If you would like to discuss your circumstances and find out if a Low Tax Prescribed Annuity will increase your ability to qualify for government benefits, while receiving additional tax exempt income schedule a 15 minute chat by clicking on the red button below in the next section.

Have Questions About Annuities?

We have answers.

We help take the mystery out of Canadian retirement income annuities by answering some of the most commonly asked questions in a simple, educational personalized way.

Our Qualified Annuity Experts will provide you with objective annuity advice and show you how including an annuity in your retirement income plan might help you achieve your life and legacy goals.

Because they are fiduciaries, they will be frank with you and tell you if an annuity isn’t a good idea given your circumstances and point you in the best direction so you will have a better outcome.

If this is the case they will advise you in writing as to why they aren’t suitable for your situation so that you won’t end up regretting your annuity decision later.

We offer a no cost, no obligation, no sales pitch, no pressure, all questions answered 15 minute chat.