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Email this9:24 pm
April 6, 2013
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When a cashable GIC is cashed early, there is sometimes a penalty of reduced interest rate. Should the interest at the original rate be paid in previous years, the GIC issuer will effectively claw back some of that interest, already paid, out of the principal returned.
In such cases, according to T5 Guide – Return of Investment Income, the T5 slips of previous years are not amended. Instead, the taxpayer gets a deduction, under subsection 20(21), for the interest reported on previous T5 slips that has now been clawed back:
Interest adjustments and penalties
Sometimes an individual may withdraw funds from an investment contract after receiving T5 slips for a number of years. Withdrawing funds can often mean an early redemption penalty, which lowers the interest rate you previously calculated on the investment contract. As a result, the actual interest you pay to the recipient is less than the total of the accrued interest reflected on the T5 slips you issued to the recipient in previous years.
In such cases, do not issue a negative T5 slip or amend the slips for previous years. Under subsection 20(21), the recipient is entitled to deduct, in the year in which the investment was disposed of, the excess interest previously included in income.
That's good. Otherwise, it would have been a capital loss on the GIC. 
10:07 pm
February 27, 2018
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Norman1.
Though i have never had to cash out a gic early, my understanding of the consequences, or the penalties due were wrong. Thank you for shedding light on this topic.
3:19 am
December 17, 2016
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The topic was previously discussed here -
https://www.highinterestsavings.ca/forum/gic/ganaraska-gic-4-for-4-years/page-2/
5:41 pm
April 6, 2013
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Kidd said
Though i have never had to cash out a gic early, my understanding of the consequences, or the penalties due were wrong. Thank you for shedding light on this topic.
You're welcome! 
I've cashed in early one of those one-year cashable term deposits from Hubert Financial. Those are cashable anytime and pay out interest quarterly. The early cashing penalty on those is just the loss of any accrued, yet unpaid interest since the last quarterly payment. So, there wasn't any clawback for interest already paid.
6:23 pm
December 2, 2018
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Norman1 said
When a cashable GIC is cashed early, there is sometimes a penalty of reduced interest rate. Should the interest at the original rate be paid in previous years, the GIC issuer will effectively claw back some of that interest, already paid, out of the principal returned.In such cases, according to T5 Guide – Return of Investment Income, the T5 slips of previous years are not amended. Instead, the taxpayer gets a deduction, under subsection 20(21), for the interest reported on previous T5 slips that has now been clawed back:
Interest adjustments and penalties
Sometimes an individual may withdraw funds from an investment contract after receiving T5 slips for a number of years. Withdrawing funds can often mean an early redemption penalty, which lowers the interest rate you previously calculated on the investment contract. As a result, the actual interest you pay to the recipient is less than the total of the accrued interest reflected on the T5 slips you issued to the recipient in previous years.
In such cases, do not issue a negative T5 slip or amend the slips for previous years. Under subsection 20(21), the recipient is entitled to deduct, in the year in which the investment was disposed of, the excess interest previously included in income.
That's good. Otherwise, it would have been a capital loss on the GIC.
Is this for a GIC that is cashed in early due to death and funds are not joint and there is no beneficiary thus funds fall into the estate?
So the last tax return of the deceased, there should be an adjustment for past years interest claimed?
And I do know if you allow the GIC to remain in the Estate Trust Fund the interest paid after death must be claimed by the beneficiaries of the Will.
Or am I off track?
It is a worth while effort to turn on ALERTS on your Credit Cards and Bank/Credit Union Accounts.
6:42 pm
April 6, 2013
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Retep said
Is this for a GIC that is cashed in early due to death and funds are not joint and there is no beneficiary thus funds fall into the estate?
Not because of death. It is actually for early cashing a cashable GIC before it matures.
For example, Ganaraska Financial Credit Union is currently offering a four-year cashable GIC for 4%. If cashed before maturity, the rate becomes 1.25%. If some of the interest at 4% had been paid out before it was cashed early, then they will clawback the difference, between the 4% paid out and 1.25%, out of the principal returned.
7:22 pm
October 21, 2013
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I suppose this doesn't happen very often, so perhaps that's why there appears to be no documentation supplied or required? To prove it, all you would have is your bank statements, I guess.
7:50 pm
December 17, 2016
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Retep said
Is this for a GIC that is cashed in early due to death and funds are not joint and there is no beneficiary thus funds fall into the estate?
So the last tax return of the deceased, there should be an adjustment for past years interest claimed?
And I do know if you allow the GIC to remain in the Estate Trust Fund the interest paid after death must be claimed by the beneficiaries of the Will.
Or am I off track?
From my personal experience as executor for 2 estates the interest rate paid on the GIC at time of collapse was the same interest rate as if the GIC were held to maturity i.e. there were NO early cashing penalties assessed. In the case of say an escalator type GIC should the individual die in the 3rd year of the GIC, interest would be paid at the 1st, 2nd, and 3rd year rates to the date of collapse.
9:13 pm
April 6, 2013
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Loonie said
I suppose this doesn't happen very often, so perhaps that's why there appears to be no documentation supplied or required? To prove it, all you would have is your bank statements, I guess.
Not sure if early redemptions with penalty clawback are frequent or not. Could be like stock dispositions. Quite common but no special tax slip either for the capital gain or capital loss.
Right now, there's no prescribed tax slip or tax statement for the subsection 20(21) deduction. I think the GIC account statement showing the clawed back amount on early redemption would be enough.
9:29 pm
October 21, 2013
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A lot of people don't keep their bank statements, and some FIs only keep them online for a limited time. Information about GICs typically disappears from one's visible record as soon as the GIC ends.
I'm just mentioning this to make people more aware that they might need to retain all documents related to the GIC, and that starts when you first buy it.
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