Go to Main Content

Advertisement

By Bruce Sellery on November 18, 2013
Estimated reading time: 1 minute

Income from an annuity is partially tax sheltered

By Bruce Sellery on November 18, 2013
Estimated reading time: 1 minute

You can't hide income from an annuity but at least it's not taxed twice.

Advertisement

Q: Do payments from an annuity (bought with after-tax money) trigger a clawback of the Guaranteed Income Supplement? —J.T. A: Money all looks the same when it arrives in your bank account. But when it comes to annuities, it’s not all the same in the eyes of the CRA. Part of the money is simply a return of your capital, explains Beth Hamilton-Keen, Director of Private Client Portfolio Management at Mawer Investment Management. “The annuity provider is giving you some of your money back. That portion was taxed when you earned it, and therefore it isn’t taxed again. But the other part is income you have earned on the investments and that part is taxable.” Had you bought the annuity in your RRSP, the entire payment would be taxable because it wasn’t taxed in the first place. If the annuity income is high enough, it can indeed trigger a clawback of the Guaranteed Income Supplement, which is reserved for seniors with very low income. The annuity provider will give you a slip to include with your taxes so both you and the government can see the amount of each part. Before tax time, it’s worth booking an appointment with an accountant to figure out how to minimize both the clawback and the overall amount of tax you pay.

About Bruce Sellery

Bruce Sellery is the CEO of Credit Canada, the country’s longest-standing non-profit credit counselling agency. He is a former MoneySense columnist.

Comments Cancel reply

Related Articles

A Canadian retired couple walking together on a street, thinking about decumulation.

What is Sun Life’s new decumulation product?

While not guaranteed like an annuity, MyRetirementIncome is a flexible and simple financial product for those needing to convert...

What is Sun Life’s new decumulation product?

Canadian Financial Summit 2024: MoneySense sessions and free tickets

Canadian Financial Summit 2024: MoneySense sessions and free tickets

How to consolidate your registered accounts for retirement income in Canada

Do Canadians need to consolidate RRSP accounts before converting to RRIFs? Find out this and more.

How to consolidate your registered accounts for retirement income in Canada

Two shiny red apples and a green apple are shown to symbolize the comparison of GICs and annuities for retirement

Annuity vs. GIC: What makes sense for retiring?

Annuity vs. GIC: What makes sense for retiring?

A male carpenter approaching retirement

Can you help your kids financially without compromising your retirement?

A Certified Financial Planner explains what to think about before helping your kids with a gift or loan.

Can you help your kids financially without compromising your retirement?

Single, no pension? Here’s how to plan for retirement in Canada

There are financial and logistical challenges to being single in retirement. Here are some tips to tackle them, especially...

Single, no pension? Here’s how to plan for retirement in Canada

A couple nearing retirement embrace on the beach

How annuities work in Canada

How annuities work in Canada

Celebrating 72nd birthday and converting an RRSP into a RRIF

How to cope with the RRSP-to-RRIF deadline in your early 70s

You don’t want to miss the conversion deadline at the end of the year you turn 71—you’ll be on...

How to cope with the RRSP-to-RRIF deadline in your early 70s

A retired woman on a sofa reading a book

RRIF and LIF withdrawal rates: Everything you need to know

Most registered retirement savings plans are eventually converted to registered retirement income funds. Here’s what to know about RRIF...

RRIF and LIF withdrawal rates: Everything you need to know

Book cover Retired Income for Life by Fred Vettesse on a pile of Canadian money.

Retirement Income for Life: Why Canadian retirees love Frederick Vettese’s books and his PERC

What’s new in the latest edition of Retirement Income for Life? A long-time fan digs into the book and...

Retirement Income for Life: Why Canadian retirees love Frederick Vettese’s books and his PERC