Under proposed changes to prescribed annuity taxation, Canadian poor seniors will pay a lot more taxes. These changes are hidden in the proposal for changes in the exemption test of life policies modifying Subsection 300(2) of the Income Tax Regulations. Under current regulations, the taxable income portion of a prescribed annuity is determined using the 1971 Individual Mortality table. The Financial Services Consumer Alliance (FSCA) has discovered that after December 2015, the new regulations would require that insurers use the Annuity 2000 Basic Mortality table.
What does this all mean? It means that the taxable portion of new annuity payments will increase as a result of this change. Particularly affected will be older and poor seniors on guaranteed income. “This is the equivalent of taxing the life expectancy of an individual,” stated Richard Proteau, President of FSCA. “These mortality tables represent the aggregate of the life expectancies for the whole Canadian population but inequalities are increasing in the Canadian society and this means that a rich senior can expect to live 5 years longer than a poor senior.”
As a result of this difference in life expectancy between the poor and the rich, the probability is that poor seniors 80 and above will be taxed on the capital they invest into an annuity while rich seniors get only taxed on the income generated by the capital invested in the annuity. To view the magnitude of the changes see our analysis at:
“What is disturbing is to see a major change to the Income tax Act hidden into another proposal for a change in legislation,” continued Richard Proteau. “This demonstrates how undemocratic and unaccountable the Harper’s government has become. What also makes me angry is that the Harper’s government, in the last budget, voted and approved a bailout package for rich Canadians who were involved into tax avoidance and tax cheating using a scheme developed by the insurance industry called the 10/8 concept. I supposed somebody had to pay for this and with the perverse logic used by the Harper’s government, poor seniors on guaranteed income should pay more taxes and pay for the abuses of the rich fraudsters. Truly it gives a new meaning to the notion of a balanced budget…”
Financial Services Consumer Alliance
The Financial Services Consumer Alliance (FSCA) is a national alliance of consumers created exclusively to defend and promote the specific rights and interests of consumers who have purchased a financial product.