What is the tax treatment of income earned within a non-registered segregated fund?

Question: What is the tax treatment of income earned within a non-registered segregated fund?

Answer options:

• The investor only pays tax when the contract reaches maturity.
• Capital gains are only taxed if the investor sells their units.
• The insurance company pays the taxes on behalf of the investor. ✅ The investor must report annual allocations of income and capital gains on their tax return.

Correct answer: The investor must report annual allocations of income and capital gains on their tax return.

Explanation: When a segregated fund is held in a non-registered account, the investor must report their share of the fund's income (interest, dividends, capital gains) on their tax return each year, even if these amounts are reinvested and not physically paid out. There is no 'tax-free' growth in a non-registered account.