Approvals - Annuities (Approval / Surrender)
APPROVAL OF ANNUITIES
A deferred annuity is one of the tools which can used by an individual to reduce his tax liability. It is a tax deductible expense and when combined with pension contributions and 70% of National Insurance Contribution the total claim must not exceed $30,000 (w.e.f. 1/1/09). To qualify for a tax deduction these annuities must be approved by the Board of Inland Revenue.
An annuity is a contract between an individual and an insurance company/financial institution
The contract must not provide for the payment of any benefit before retirement or maturity except by way of:
(a) refund of premiums
(b) withdrawal of premiums
The contract must not provide for a payment of any benefit after retirement or maturity except by way of gratuity and pension of:
(a) an annuity to the annuitant for his life' or
((b) an annuity to the annuitant for the lives, jointly, of the annuitant and spouse and to the survivor of them for his life commencing at maturity and with or without a guaranteed term, not exceeding fifteen years
The contract must not provide for the payment of any amount by way of pension or of an annuity except equal annual periodic amounts throughout the lifetime of the employee after retirement
The contract must not provide for the payment of any contribution after retirement or maturity
The contract must not provide for retirement/maturity before the age of fifty years or after the age of seventy years.
The contract must also include a provision that prevents surrender, commutation or assignment of pension of annuity payable
Approval is sought on behalf of the individual by the Insurance Firm / Financial Institution.
An immediate annuity is a contract between an individual and a person authorized to carry on annuities business in T&T (e.g. Insurance Companies & Financial Institutions) under which, in consideration of lump-sum payment made by the individual, the person agrees to pay to the individual an annuity or other periodic sum commencing immediately.
(a) be a resident of Trinidad and Tobago; and
(b) have attained the age of 60 years (up to 31/12/05)
The income derived from an immediate annuity is thus exempt from tax.
SURRENDER OF ANNUITIES
An Individual who wishes to terminate an annuity contract prior to its maturity date must first get the approval of the Board of Inland Revenue to have the contract cancelled.
Since tax breaks would have been given based on the approved contracts, when the contract is broken, the amounts received on surrender are subject to tax at the rate of 25%.
Approval is granted for surrender when the individual clears all outstanding liabilities and file all outstanding tax returns (*where applicable). Outstanding amounts may be cleared by requesting that the BIR issue a Garnishee Order to the Financial Institution or Insurance Company. The institution shall first pay to the BIR all outstanding sums from the surrender value, after which the balance is then paid to the individual.
*Effective income year 2001 persons in receipt of emolument income only, are no longer obligated to file an Income Tax Return. However The individual will be required to sign a declaration form indicating that his/her income is from emolument sources only.