Fixed-income taxation demystified

Selling a bond for more than you paid isn't always treated as a capital gain.

Matthew Elder 12 April, 2016 | 5:00PM

With interest rates at or near-historic lows for years now, it's been tough to make a buck on most recently issued bonds, treasury bills or other fixed-income securities. Periodic interest payments from recent issues are negligible. And with rates having almost nowhere to go but up, there's little opportunity to profit from the sale of a low-yielding bond or Treasury bill before maturity.

However, if in 2015 you sold a bond that you had purchased many years ago when interest rates were much higher, you probably made a profit. To maximize that profit, it's important that you make the most of the tax break available on the capital gain you realized, in addition to correctly reporting the interest earned.

Interest received from bonds and other fixed-income instruments during the year is reported on the T5 (and in some cases T3) tax information slips received from investment dealers. These amounts also can include any accrued interest earned during the year from a compound-interest investment such as a GIC or a C-series Canada Savings Bond.

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Matthew Elder

Matthew Elder