Wealth update – Avoid the Claw-Back with Prescribed Annuities

We’ve seen time and time again how the OAS claw-back leaves a bad taste in clients’ mouths. What if there was a way to potentially reduce or eliminate the claw-back? How about Prescribed Annuities.

What is a prescribed annuity contract?

A prescribed annuity provides level, tax-efficient income by blending taxable interest and non-taxable capital return evenly over the life of the annuity. This results in a consistent taxable portion, unlike non-prescribed annuities, where the taxable amount is higher in the early years.

Key Features

• Level payments: Combines interest and return of capital in a fixed ratio over the life of the contract.

• No deemed disposition on death: Generally, no tax event at death unless a lump sum is paid to a beneficiary.

• Tax deferral: Provides smoother tax reporting, avoiding front-end loaded taxation of interest.

Consider a 75-year-old client who has $120,000 in taxable income and is having their OAS clawed back. What if we could reduce this taxable income to approximately $90,000 and eliminate the claw-back, and maintain this client’s current income of $120,000.

Let’s buy a non-registered prescribed annuity with $430,000 to provide $35,000 of income, but only $5,000 will be taxable. Now the client will take $85,000 of income plus $35,000 in annuity income so the $120,000 income need is maintained. However, the taxable income will be $85,000 plus $5,000 or $90,000.

In 2025, the OAS claw-back threshold is $93,454, so no more claw-back! 

P.S. Remember all the great resources in the QFS Investment Toolbox. These can be found at qfscanada.com under the Advisor Portal, within the Advisor Toolbox.