Israel bonds taxation | Page 2 | General financial discussion | Discussion forum

FuzzyGreat said
So if I understand correctly, Israel Bonds held at Computershare are issued T5s but inside other brokerage accounts are considered capital gains? This seems odd and also highly tax advantaged to keep them in a brokerage account...

There's no difference. T5 slips will be issued for the interest in both cases.

The T5008 slip is not for interest. It is to report "the amount paid or credited to you for securities you disposed of or redeemed during the year."

Whether or not there is a capital gain or capital loss is to be determined when one reports the disposition on Schedule 3 and subtracts the cost of the investment that was disposed or redeemed.

There is definitely a capital gain of $18 if one had invested $1,000 and then received $1,018 on maturity, in addition to the interest received.

I can't say where the $18 of capital gain came from without the specifics. Are you sure the proceeds was actually $1,018?

The broker could have made a mistake. Maybe, on maturity, one received $1,000 for surrendering the bond and $18 of interest. Proceeds should have then been $1,000 and the interest $18. Broker's backoffice could have mistakenly recorded $1,018 as the proceeds and the interest as zero!

There's nothing special about being the holder of a bond when the bond matures.

The last holder is deemed to have disposed of the bond at maturity. If what the last holder receives at maturity is not the same as what the holder had paid for the bond, then there will be a capital gain or loss. Regardless of whether or not there is a capital gain or loss, the disposition at maturity needs to be reported on Schedule 3.

One can easily have a capital gain or loss if the bond is one of the US$ Israel bonds. One may have purchased a US$10,000 bond for C$12,500. At maturity, one would receive US$10,000 plus the interest. But, if the US$ is worth C$1.35 at maturity, then the US$10,000 received at maturity counts as C$13,500. One would have a capital gain of C$13,500 - C$12,500 = C$1,000.

^ ^ ... I just tested the mentioned above interest in Simple Tax ( aka WealthSimple Tax nowadays ) and looks the like the amount of tax paid on it is exactly the same regardless if you'd show it in box 13 or box 15 (Interest from Canadian Sources vs Foreign Income) 🙂

The Box 13 for Canadian interest is a remnant from a time when there was an $1,000 exemption for Canadian interest and dividend income.

That exemption has been gone for decades.

Canadian interest continues to go in Box 13 of the T5 slip.

Without the former $1,000 Canadian interest/dividend exemption, Canadian interest ends up taxed at the same rate as foreign interest in Box 15.

Any foreign tax required to be paid is credited against the Canadian taxes and not deducted from the reported interest. So, one ends up paying the higher of Canadian tax and foreign tax.