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Monday, 21 March 2016

Should you consider buying prescribed annuities now to avoid 2017 tax increases?

Living longer than people in previous generations is great but more and more people are now worried about the possibility of outliving their savings. 

Because of this, guaranteed-for-life income solutions are becoming a vital investment component for many Canadians. 

Within the available choices of guaranteed-income solutions, prescribed annuities provide much higher annual take-home income than you'll get from other typical guaranteed savings choices due to both their structure and the overlay of significant tax benefits. For example*:

A 60 year old in the 40% tax bracket using $100,000 in savings to provide income for life :

Scenario 1: 2% GIC is purchased
Gross Income: $2,000
Taxable amount: $2,000
Net Annual Income: $1,200

Scenario 2: 5% Prescribed Annuity purchased

Gross Income: $5,000
Taxable amount: $1,054  (if purchased in 2016)
Net Annual Income: $4,578 

*Please note that this example is for illustration purposes only.



Your annual taxable amount is set for life when you purchase prescribed annuities.  If this same 5% prescribed annuity is purchased in 2017 the taxable amount is expected to increase from $1,054 to $1,450. 


It is also important to consider how various retirement income streams might lower or even eliminate your income tested government benefits such as your Old Age Security pension (OAS). For the 2016 taxation year OAS clawbacks begin when your total annual taxable amount (not your total income) exceeds $72,809.  OAS benefits are completely eliminated when your net income (including your OAS income benefit) is just over $118,000.

Prescribed annuities provide the benefits of higher incomes and low taxable amounts. This often a win-win-win for people looking for higher incomes, lower income taxes and getting the most from their income tested government pension plans.



You may now be asking yourself these questions:
  • How do prescribed annuities or other guaranteed-for-life income options work?
  • How is prescribed annuity income guaranteed and for how long?
  • What is the value of my prescribed annuities to my estate, spouse and other beneficiaries when I die
  • Are annuities suitable for me? Would they be suitable for my dependants?
  • Are there guaranteed for life income annuities that allow me to access my capital just in case I need it? 
  • Should I get prescribed annuities now to avoid tax increases coming in 2017? 

As always, please feel free to contact us anytime. We make every effort to answer these and any other questions you might have within one business day.

Best Regards


Jack