LLQP Segregated Funds & Annuities · Component 3.1 · 25% of the exam
For a non-registered annuity purchase by an individual seeking tax efficiency, the recommendation should:
- ASet tax aside, since the difference between prescribed and accrual treatment is too small to affect the choice
- Structure the annuity to qualify for prescribed treatment where suitable, levelling the taxable portion
- CChoose accrual taxation, since paying more tax early reduces the client's exposure to future rate increases
- DHave a corporation own the annuity, since corporate ownership gives the most favourable tax treatment
Correct answer: B) Structure the annuity to qualify for prescribed treatment where suitable, levelling the taxable portion
Prescribed status is a design outcome. It suits clients who want level income and lower early tax.
Why the other options are wrong
- ATax treatment is a key input to designing a non-registered annuity.
- CAccrual front-loads tax.
- DCorporate ownership disqualifies prescribed treatment.
Exam tip
Non-registered annuity: design for prescribed status when suitable.
Common mistake
Accidentally disqualifying prescribed status with indexing or deferred start.
What this tests
CISRO competency component 3.1 — Implement a recommendation adapted to the client's needs and situation — which is weighted at 25% of the Segregated Funds & Annuities module. Written against the published curriculum.
More from component 3
- A client's spouse must sign for:
- When the insurer requests additional information after the application (for example, source of wealth for a large deposit), the agent should:
- The implementation of a recommendation involving a switch from one seg fund to another within a contract requires:
- A client wishes to designate a charity as beneficiary of a segregated fund. Implementation should:
- For a deferred annuity implemented for a client, the agent should confirm:
- The agent's record of the implementation should be retained:
Practice the whole Segregated Funds & Annuities module
Timed sets weighted like the exam, and review of every question you miss. Free to start.