LLQP Segregated Funds & Annuities · Component 2.3 · 30% of the exam
A retiree buys a level non-registered annuity with savings and asks how the CRA will tax it. A prescribed annuity is taxed:
- ANot at all, since the capital has already been taxed and the interest is exempt
- BFully as income in the year received, in the same way as a registered annuity
- COn accrual, with the interest element reported as it is earned inside the contract rather than when it is paid out
- On a level basis, each payment blending equal taxable interest and non-taxable return of capital
Correct answer: D) On a level basis, each payment blending equal taxable interest and non-taxable return of capital
Prescribed treatment requires the annuity to meet conditions (individual owner, level payments, non-indexed, purchased with non-registered funds, payments starting within a year). It is a valuable tax feature.
Why the other options are wrong
- AThe interest portion is taxable.
- BOnly the interest portion is taxable.
- CAccrual is the non-prescribed treatment.
Exam tip
Prescribed annuity: level taxable portion each year; conditions apply.
Common mistake
Assuming an indexed non-registered annuity qualifies for prescribed treatment.
What this tests
CISRO competency component 2.3 — Analyze the available products that meet the client's needs — which is weighted at 30% of the Segregated Funds & Annuities module. Written against the published curriculum.
More from component 2
- A segregated fund's 'guaranteed amount' after a partial withdrawal under proportional reduction is:
- A distinctive estate advantage of a segregated fund over a non-registered mutual fund held jointly with a child is:
- Segregated fund guarantees are most valuable relative to their cost when:
- A segregated fund's annual statement reports:
- Compared with a segregated fund, an exchange-traded fund (ETF) generally offers:
- A segregated fund's 'automatic death benefit reset' feature:
Practice the whole Segregated Funds & Annuities module
Timed sets weighted like the exam, and review of every question you miss. Free to start.