# Lotto Question: What's a Better Deal? **URL:** \ **Category:** Factual Questions\ **Created:** [February 15, 2007, 4:34am UTC](https://boards.straightdope.com/t/lotto-question-whats-a-better-deal/392313 "2007-02-15T04:34:25Z")\ **Posts on this page:** 14\ **Page:** 1
**Author:** ![Gus\_Handsome](https://avatars.discourse-cdn.com/v4/letter/g/e68b1a/32.png) [@Gus\_Handsome](https://boards.straightdope.com/u/Gus_Handsome)\ **Post date:** [February 15, 2007, 4:34am UTC](https://boards.straightdope.com/t/lotto-question-whats-a-better-deal/392313/1 "2007-02-15T04:34:25Z")
There’s a new lottery in Canada called “Millionaire Life” The top prize is 1M per year for 25 years or a one time cash payment of 17M. Of course the lotto here is all tax free. What is the better deal? My friends and I debated the 17M would be a wiser choice because that would almost give you 1M a year in interest if you were careful. (of course you would have to pay income tax on the interest) Any math experts here? What’s the straight dope. which is the better choice? Thanks Gus ---
**Author:** ![Gus\_Handsome](https://avatars.discourse-cdn.com/v4/letter/g/e68b1a/32.png) [@Gus\_Handsome](https://boards.straightdope.com/u/Gus_Handsome)\ **Post date:** [February 15, 2007, 4:46am UTC](https://boards.straightdope.com/t/lotto-question-whats-a-better-deal/392313/2 "2007-02-15T04:46:02Z")
I should have mentioned the clause titled “Death of Annuity Winner” “In the event that the holder of the winning ticket who selected the annual annuity payments dies prior to the end of the 25-year period over which the annual annuity payments are to be paid, ILC shall pay to the executor(s) or administrator(s) of such deceased holder the commuted present value, as determined by ILC, of the annual annuity payments remaining to be paid.” ---
**Author:** ![Duckster](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/duckster/32/1244_2.png) [@Duckster](https://boards.straightdope.com/u/Duckster)\ **Post date:** [February 15, 2007, 5:03am UTC](https://boards.straightdope.com/t/lotto-question-whats-a-better-deal/392313/3 "2007-02-15T05:03:01Z")
Can you help? What sort of tax rates are we talking about? No math expert. Assuming a pragmatical attitude with respect to spending and investing, take the initial lump sum. Even with having to pay taxes on any interest and earnings on the principal, one should easily be able to make up the 8 million difference in less than 25 years. ---
**Author:** ![Gus\_Handsome](https://avatars.discourse-cdn.com/v4/letter/g/e68b1a/32.png) [@Gus\_Handsome](https://boards.straightdope.com/u/Gus_Handsome)\ **Post date:** [February 15, 2007, 5:15am UTC](https://boards.straightdope.com/t/lotto-question-whats-a-better-deal/392313/4 "2007-02-15T05:15:36Z")
I’m not 100% sure, but I think around the 42% mark sounds correct, and that’s without having a good tax guy taking advantages of any special loop holes and whatnot. I’m sure a Canadian well versed in tax law will come along 🙂 ---
**Author:** ![ultrafilter](https://avatars.discourse-cdn.com/v4/letter/u/3d9bf3/32.png) [@ultrafilter](https://boards.straightdope.com/u/ultrafilter)\ **Post date:** [February 15, 2007, 5:22am UTC](https://boards.straightdope.com/t/lotto-question-whats-a-better-deal/392313/5 "2007-02-15T05:22:23Z")
If payments are at the end of the year, the present value of the annuity at the beginning of the first year is greater than 17 million only when interest rates are under 3.5%. You can do better than that with the lump sum, I hope. ---
**Author:** ![Duckster](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/duckster/32/1244_2.png) [@Duckster](https://boards.straightdope.com/u/Duckster)\ **Post date:** [February 15, 2007, 5:42am UTC](https://boards.straightdope.com/t/lotto-question-whats-a-better-deal/392313/6 "2007-02-15T05:42:34Z")
Here we go to start for Canadian tax rates —\> [http://www.cra-arc.gc.ca/tax/individuals/faq/taxrates-e.html](http://www.cra-arc.gc.ca/tax/individuals/faq/taxrates-e.html) > [@](#): > > **Annuities as Prizes** > > 1. Where the prize in a lottery scheme is an annuity, for the purposes of determining the amounts to be brought into income, the initial adjusted cost basis of the annuity is considered to be the fair market value of the annuity when it was acquired in accordance with subsection 52(4). Should the annuity be a prescribed annuity contract, as defined in Regulation 304, the adjusted purchase price of the annuity will be its fair market value at the time it was acquired. For prescribed annuity contracts and those other annuity contracts not subject to the accrual rules, annuity payments are brought into income under paragraph 56(1)(d) and a deduction from income is allowed under paragraph 60(a) for a portion of the adjusted purchase price as determined under Regulation 300. For other annuity contracts, which are subject to the accrual rules, the income from the annuity is determined according to the provisions of paragraph 56(1)(d.1) and section 12.2 in which the adjusted cost basis is a determining factor. In the case of the application of paragraph 56(1)(d.1) and section 12.2, the income calculation should be furnished by the issuer. Source: [http://www.cra-arc.gc.ca/E/pub/tp/it213r/it213r-e.html](http://www.cra-arc.gc.ca/E/pub/tp/it213r/it213r-e.html) I will leave it up to the experts to decipher all this. ---
**Author:** ![groman](https://avatars.discourse-cdn.com/v4/letter/g/73ab20/32.png) [@groman](https://boards.straightdope.com/u/groman)\ **Post date:** [February 15, 2007, 6:49am UTC](https://boards.straightdope.com/t/lotto-question-whats-a-better-deal/392313/7 "2007-02-15T06:49:51Z")
[QUOTE=Gus\_Handsome] There’s a new lottery in Canada called “Millionaire Life” The top prize is 1M per year for 25 years or a one time cash payment of 17M. Of course the lotto here is all tax free. What is the better deal? My friends and I debated the 17M would be a wiser choice because that would almost give you 1M a year in interest if you were careful. (of course you would have to pay income tax on the interest) Any math experts here? What’s the straight dope. which is the better choice? [/QUOTE] I don’t think a math expert is going to help you much. What we need is an accountant or a broker. I’m neither, but as a semi-educated WAG, I’d say that based on market performance, over the next 25 years you can expect at least 10%-15% annual growth by simply investing in index funds. For example, had you invested 17M into S&P 500 index fund 25 years ago and forgot about it your portfolio would be worth over 150M right now. Of course, once sold you would have to pay Canada’s equivalent of the capital gains tax on the profit, but I’d say getting the annuity is only a good idea if you entirely don’t trust yourself with the money. ---
**Author:** ![Oakminster](https://avatars.discourse-cdn.com/v4/letter/o/77aa72/32.png) [@Oakminster](https://boards.straightdope.com/u/Oakminster)\ **Post date:** [February 15, 2007, 7:06am UTC](https://boards.straightdope.com/t/lotto-question-whats-a-better-deal/392313/8 "2007-02-15T07:06:04Z")
I’d take the lump sum. Cash money right now is good. The lotto company might go broke, get looted by corrupt officials, or some other circumstance might occur to deprive me of the prize. $17 Million is way more than enough to retire on, live comfortably for the rest of my life, and pass on a sizable estate to my heirs. ---
**Author:** ![Hampshire](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/hampshire/32/4887_2.png) [@Hampshire](https://boards.straightdope.com/u/Hampshire)\ **Post date:** [February 15, 2007, 2:43pm UTC](https://boards.straightdope.com/t/lotto-question-whats-a-better-deal/392313/9 "2007-02-15T14:43:01Z")
It really depends on what your goals are. Are you looking to have the most money at the end of 25 years? What money are you going to use to live for the next 25 years? If your planning to use some of your winnings on living expenses how much are you going to use? I’m sure people could tell you how to get the most money after 25 years but it’s not really worth much until you trade it in for goods and services. ---
**Author:** ![BwanaBob](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/bwanabob/32/2985_2.png) [@BwanaBob](https://boards.straightdope.com/u/BwanaBob)\ **Post date:** [February 15, 2007, 2:51pm UTC](https://boards.straightdope.com/t/lotto-question-whats-a-better-deal/392313/10 "2007-02-15T14:51:13Z")
I was under the impression that lottery winnings were not taxed in Canada. ---
**Author:** ![Colophon](https://avatars.discourse-cdn.com/v4/letter/c/f05b48/32.png) [@Colophon](https://boards.straightdope.com/u/Colophon)\ **Post date:** [February 15, 2007, 2:54pm UTC](https://boards.straightdope.com/t/lotto-question-whats-a-better-deal/392313/11 "2007-02-15T14:54:37Z")
[QUOTE=BwanaBob] I was under the impression that lottery winnings were not taxed in Canada. [/QUOTE] That’d be why the OP said: “Of course the lotto here is all tax free.” ---
**Author:** ![Fear\_Itself](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fear_itself/32/19637_2.png) [@Fear\_Itself](https://boards.straightdope.com/u/Fear_Itself)\ **Post date:** [February 15, 2007, 3:22pm UTC](https://boards.straightdope.com/t/lotto-question-whats-a-better-deal/392313/12 "2007-02-15T15:22:25Z")
[QUOTE=BwanaBob] I was under the impression that lottery winnings were not taxed in Canada. [/QUOTE] But interest income on the winnings is. So if you take the lump sum, you will have less to invest each year than the state does, because they do not pay tax on the interest. ---
**Author:** ![BwanaBob](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/bwanabob/32/2985_2.png) [@BwanaBob](https://boards.straightdope.com/u/BwanaBob)\ **Post date:** [February 15, 2007, 5:30pm UTC](https://boards.straightdope.com/t/lotto-question-whats-a-better-deal/392313/13 "2007-02-15T17:30:33Z")
[QUOTE=Colophon] That’d be why the OP said: “Of course the lotto here is all tax free.” [/QUOTE] Sorry I somehow missed that! ---
**Author:** ![Santo\_Rugger](https://avatars.discourse-cdn.com/v4/letter/s/e95f7d/32.png) [@Santo\_Rugger](https://boards.straightdope.com/u/Santo_Rugger)\ **Post date:** [February 15, 2007, 8:38pm UTC](https://boards.straightdope.com/t/lotto-question-whats-a-better-deal/392313/14 "2007-02-15T20:38:32Z")
[QUOTE=Fear Itself] But interest income on the winnings is. So if you take the lump sum, you will have less to invest each year than the state does, because they do not pay tax on the interest. [/QUOTE] It doesn’t matter to the winner how much the state has to invest every year, because they’re getting a fixed ammount, anyway.