2017 TAX RULE CHANGES MAKE 2016 A GREAT YEAR TO BUY A …

2017 TAX RULE CHANGES MAKE 2016 A GREAT YEAR TO BUY A LIFE ANNUITY

Purchasing a life annuity with non-registered money has always had many benefits, but with tax changes coming January 1, 2017, there's even more incentive to buy now. Two of the most powerful benefits of a life annuity are lifetime guaranteed income unaffected by the market or interest rates and the highest level of guaranteed income available. Beyond these benefits, income from a life annuity purchased with non-registered money may qualify1 for preferential tax treatment, called prescribed taxation. Upcoming tax changes, however, will increase the taxable portion of each payment and reduce the after-tax income you receive, so it's important to act now.

HOW PRESCRIBED TAXATION WORKS

After the life insurance company calculates the income for an eligible annuity purchased with non-registered money, it must calculate the taxable portion of each income payment, using a formula specified by the Income Tax Act (ITA). The formula takes into account the:

? Premium used to purchase the annuity, ? Amount of each annuity payment, and ? Number of payments you're expected to receive (dependent on life expectancy,

determined using tables specified by the ITA). The taxable portion remains the same for every payment and generally, the older you are when you buy the annuity, the lower the taxable amount. For some, no tax is payable.

Continued on reverse.

Life's brighter under the sun

WHAT'S CHANGING?

After January 1, 2017, the formula is changing to use updated life expectancy tables. Current tables use life expectancy data from 1971; the new tables reflect significantly improved life expectancies. The updated tables won't affect the total amount of an annuity income payment, but it will affect your net income because of higher taxable portions for annuities (single and joint life) purchased on or after January 1, 2017.

IMPACT OF THE CHANGE

The table below shows the potential impact of the change by comparing identical annuities, where the taxable portion is calculated using the existing and new life expectancy tables:

Age at purchase Annual income Annual taxable portion ? existing

Annual taxable portion ? new

Single life: male

65

$6,004.93

$510.42

$1,078.82

70

$6,884.68

$348.73

$1,002.33

75

$7,726.16

$33.85

$733.15

80

$8,670.51

$0.00

$540.43

Single life: female

65

$5,426.35

$595.43

$1,001.57

70

$6,241.54

$359.19

$922.39

75

$7,099.58

$0.00

$606.07

80

$8,066.32

$0.00

$314.38

$100,000 premium; 10-year guaranteed period; purchase date July 1, 2015; income starts August 1, 2015. For illustration purposes only. Different annuities will result in taxable portions that may not vary from old to new in the same proportion.

Annuities purchased on or after January 1, 2017, will use the new life expectancy table to calculate the taxable portion of each payment, but annuities purchased before January 1, 2017, will still use the old tables, even if annuity payments won't begin until after January 1, 2017. This "grandfathering" provision is a good reason for you to purchase your annuity before January 1, 2017.2

If you're in or approaching retirement and have non-registered assets you plan to use to generate retirement income, then a prescribed annuity can provide a very taxefficient income option. The upcoming January 1, 2017 tax changes, combined with the grandfathering provision, mean 2016 is the best time to purchase a prescribed annuity.

Speak to your advisor to learn more.

1 A life annuity must meet certain criteria to qualify for prescribed taxation. Most Sun Life Payout Annuities sold to individuals qualify. Ask your advisor for details.

2 To qualify for grandfathering, an annuity purchased before 2017 must have rates that were fixed and determined before January 1, 2017. The annuity must also meet all other conditions to qualify for prescribed tax treatment before January 1, 2017.

Life's brighter under the sun

Sun Life Assurance Company of Canada is a member of the Sun Life Financial group of companies. ? Sun Life Assurance Company of Canada, 2016. 810-4531-Digital-02-16

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download