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Tax Changes to Prescribed Life Annuities (franรงais)

Effective January 1, 2017, the formula for calculating the taxable portion of prescribed life annuities is changing. This change will not affect the gross amount of the annuity payment, but the taxable portion will be higher. Prescribed life annuities purchased on or before December 31, 2016 will benefit from a grandfathering provision with regard to calculating the taxable portion, even if their payment begins after January 1, 2017.

 

Why is the taxable portion changing?

The calculation formula in the Income Tax Act uses a mortality table to calculate life expectancy for tax purposes. As of January 1, 2017, this table will be replaced with a more current table. The new table reflects longer life expectancies, which will result in a higher taxable portion (with no impact to the pre-tax income amount).

To learn more about prescribed life annuities and the benefits of prescribed taxation, view our payout annuity marketing piece titled Prescribed Annuities: Tax-efficient retirement income. To see an example of how the tax changes will impact the taxable portion of a life annuity, view our marketing piece titled: Prescribed Life Annuities: Best before January 2017

 

What are the deadlines I should know about?

To help ensure that your clients receive the existing preferable taxation, we recommend that all applications being funded by a transfer from another institution be submitted by Friday November 18, 2016, and all applications being funded by cheque by Friday December 16, 2016. These deadlines should allow for adequate processing time, as fully completed applications, cheques, and all outstanding requirements must be received at our head office no later than 12 p.m. ET on Thursday December 29, 2016 in order for us to issue the annuity using the current (and more preferred) taxation. Due to the legislative nature of this change, no exceptions beyond this date can be allowed.

Because money transferred from other financial institutions and outstanding requirements can sometimes significantly prolong the process, we urge you to initiate the process of submitting your applications and cheques/transfer requests as soon as possible. Cheques cannot be postdated for 2017.

 

When will the illustration systems be updated?

Version 2016-5 of the Equitable Sales Illustrations System will update payout annuity illustrations with the new taxation and will be available for download in early December. Quotes produced on this version of the system will show the taxable portion of the annuity payment based on the new tax rules, expecting the policy will be purchased after December 31. If you expect the policy to be purchased before January 1 (application and cheque received by us no later than December 29), you can continue to produce an illustration showing the taxable portion based on the current tax rules by using our Online Annuity Quotation tool.

The Online Annuity Quotation tool will be updated at year-end.

The formula used to calculate the taxable portion of the annuity will depend on the date that the completed application and cheque are received by us. If an illustration is produced showing the taxable portion based on the new tax rules, but the application and cheque are received by December 29, we will produce a final illustration showing the taxable portion based on the current (preferred) tax rules. Conversely, if an illustration is produced showing the taxable portion based on the current (preferred) tax rules, but the application and/or cheque are received after December 29, we will produce a final illustration showing the taxable portion based on the new tax rules.

 

Examples:

 

Fully completed application

Cheque

Taxation received

Date received/outstanding
requirements completed

November 27th

January 3rd

New

Date received/outstanding
requirements completed

January 7th

December 10th

New

Date received/outstanding
requirements completed

December 29th

December 29th

Current (Preferred)

 

Any questions?

Feel free to contact your Regional Investment Sales Manager or your Equitable Life Advisor Services team .