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The Taxation of Annuities

Published online by Cambridge University Press:  18 August 2016

M. E. Ogborn
M. E. Ogborn
Affiliation:
Equitable Life Assurance Society
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Extract

(1) The proper method of taxation of annuities has been a subject of contention for many years, and it seems a suitable time to discuss what are the correct principles to be applied.

(2) It seems illogical that life annuities should be taxed on a different principle from annuities payable for a fixed period not dependent on life. It also seems wrong that, whereas a person who has saved capital on which to live in old age may draw on the capital from time to time without being taxed on it, the same person if he buys an annuity so as to equalize the payments throughout the remainder of life has to pay tax on the capital content of the annuity.

(3) Various methods(1) have been devised in other countries as practical measures giving some allowance for the capital content of annuity payments, but those methods that I have seen suffer to my mind from being founded on arbitrary rules rather than on principle. It should be noted that the practice of each country is bound up with the definition of taxable income and the treatment of wasting assets in that country. In Great Britain it is possible so to word an annuity contract that part of the annuity is not taxable, but personally I think the question of principle should be faced, and not avoided by rewriting the contracts in some other form.

Type
Research Article
Information
Journal of the Institute of Actuaries , Volume 74 , Issue 1 , 1948 , pp. 31 - 56
Copyright
Copyright © Institute and Faculty of Actuaries 1948

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References

(1) The Royal Commission on the taxation of annuities and family corporations, Ottawa, Canada, 1945. Submission by the Canadian Life Insurance Officers Association.Google Scholar
(2) Rowlands, S. J. and Wales, F. H. J.I.A. Vol. LXVIII, p. 447. The taxation of the annuity fund and some practical points arising therefrom.Google Scholar
(3) Shrewsbuary, A.H. J.I.A. Vol. LXXII, p. 35. Income tax as affecting life assurance offices.Google Scholar
(4) Report of the Royal Commission on the Income Tax, 1920. Section dealing with wasting assets.Google Scholar