Taxation on annuities can be described as follows:
Registered Annuities:
– The annuity payment is fully taxable
Non-registered Annuities:
– Only the interest portion is taxable.
– The taxable portion can be reported on a prescribed or non-prescribed basis.
- Prescribed: level taxable portion each year. This taxation basis is attractive to taxpayers as it allows for the deferral of taxes. It is regulated and can only be used with specific types of annuities. All other annuities must be on a non-prescribed taxation basis.
- Non-prescribed: taxable portion changes each year.