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The performance of a market-linked guaranteed investment depends on the evolution of 1 or more stock market indexes, or on the performance of a portfolio of financial assets (equity, fixed income securities, etc.). The capital invested is 100% guaranteed, and maturities generally range from 35 to 5 years.
Usually, interest income on a non-registered investment must be reported each year. However, the interest earned on market-linked guaranteed investments is taxed only at maturity, when the return can be calculated with certainty.
Here's how the income on these investments must be reported.
An enhanced return guaranteed investment guarantees a minimum annual return, paid either monthly or annually (determined in advance).
Even if the income on your market-linked guaranteed investments is only taxable at maturity, why not invest it in an RRSP? This way, taxes on the interest will be deferred until withdrawal from the RRSP.
When your RRSP matures, at the latest at the end of the year you reach age 71, you can transfer your market-linked guaranteed investments to a RRIF. However, your RRIF will have to include sufficient liquidity to allow you to make the minimum annual withdrawal.
If, when your RRSP matures, you choose to purchase a fixed annuity or lifetime annuity with the full amount available, you cannot hold market-linked guaranteed investments.
If you decide to include market-linked guaranteed investments in your Tax-Free Savings Account (TFSA), the timing of taxation will no longer be an issue since this account is designed to generate income that will never be subject to tax.
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