How Annuity Withdrawals Are Taxed? 
Annuity withdrawals from a non-registered immediate or payout annuity consist of an interest portion and a return of capital portion . In Canada , you are not taxed on the return of capital portion , but you are taxed on the interest portion . Think of annuities as the opposite of a mortgage . In a 25 year mortgage , early payments consist of mostly interest with little going towards the principle . With an annuity , the early payments you receive are mostly taxable interest and a little of your own principle . For those individuals who can qualify , a prescribed annuity equalizes the interest income . For example , with a 25 year annuity the total interest earned is divided by 25 and spread out equally over the term of the contact . Increased after tax income in the early years is the result . There are specific rules governing prescribed annuities , If you are interested in more information , please contact me . Income from a payout annuity may qualify for income splitting for income tax purposes . This allows you to transfer up to 50 % of the taxable income earned from the payout annuity . Missing out on the federal pension income income tax credit ? Income from a payout annuity may qualify for the $ 2,000 non-refundable tax credit . Note : Interest earned on a Guaranteed Investment Annuity -LRB- GIA -RRB- also may qualify . If you have further questions , or feel that I could be of assistance , please do not hesitate to contact me . If you would like to work with a local life insurance broker , you could start with a Google search . For example , if you search for : life insurance broker Halifax or life insurance agent Halifax , my name , along with several others , will come up . You can use the same method to find a life insurance broker in your community . 