LLQP Segregated Funds & Annuities · Component 1.2 · 35% of the exam
A client's existing non-registered segregated fund allocates income annually. The assessment should note that:
- AAll income is taxed as interest, since the insurer receives it and passes it on as a single payment
- BNo tax applies until redemption, since the income stays inside the contract and is not paid out
- CIncome is tax-free, since a segregated fund is an insurance contract and exempt from tax
- Interest, dividends and gains are allocated and taxed annually by character, even if not withdrawn
Correct answer: D) Interest, dividends and gains are allocated and taxed annually by character, even if not withdrawn
Segregated funds flow through income and losses annually. The ability to allocate capital losses is a feature mutual funds lack.
Why the other options are wrong
- ACharacter is preserved; dividends and gains keep their treatment.
- BAllocations are taxed annually whether or not they are withdrawn.
- CNon-registered income is taxable; the insurance wrapper does not exempt it.
Exam tip
Seg fund allocations: annual, by character, including losses.
Common mistake
Telling a client a non-registered seg fund defers all tax to redemption.
What this tests
CISRO competency component 1.2 — Assess the client's needs and situation — which is weighted at 35% of the Segregated Funds & Annuities module. Written against the published curriculum.
More from component 1
- The first step before recommending a segregated fund or annuity is to:
- A client's 'time horizon' for an investment is:
- 'Risk tolerance' in an investor profile refers to:
- A client says he wants 'high returns with no risk of losing money'. The agent should:
- Investment objectives are commonly classified as:
- Why is the client's marginal tax rate relevant to a segregated fund recommendation?
Practice the whole Segregated Funds & Annuities module
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