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Corporate fixed income over 5.6 percent
November 18, 2023
1:06 pm
Briguy
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Norman1 said
Also keep in mind that difference between AMT paid and regular income taxes can be refundable in future years when one's AMT is less than the regular income taxes paid. The PwC article notes the following:

If the AMT calculated exceeds the regular federal income tax otherwise payable, the individual will have to pay the AMT instead of the regular federal income tax. The difference between the AMT and the regular federal income tax is considered a “temporary” refundable tax that, once paid, can be applied in the following seven years to reduce the amount of regular federal income tax that the individual would otherwise have to pay, up to the amount by which that regular tax exceeds the AMT calculated for that year.

  

Very interesting ! Makes AMT even less of a concern.

November 18, 2023
1:29 pm
Norman1
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Briguy said

I've never tried buying a bond before, so I might have been doing this wrong.I pretended to buy 5000 dollars worth of CWB on ITrade, and I put a qty of 5000, and it showed a fee of 25.00, which is assume is about 52 bonds, since it's showing a 95.72 cost.

Scotia iTRADE quietly waives the commission only on orders for $25,000 of bonds or less and for bonds maturing in 89 days or earlier.

Those Canadian Western Bank 2.606% bonds mature 2025/01/30, which is way more than 89 days in the future.

Try it for some Royal Bank of Canada 2.333% bonds that mature 2023/12/05. Yield to maturity is around 5%. Around 2.3% of the 5% return is interest. The rest is capital gains.

November 18, 2023
1:39 pm
Briguy
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That's actually a much more tax efficient method of earning than a 1 yr cashable GIC from Hubert, and fairly similar, except harder to cash in if you need the money in your example before Dec 5. Its a pretty safe bet that interest rates will stabilize for a while, and possibly go down 50 points over 2024, so most likely if you are forced to sell your bond before maturation you may even make money if the interest rates do go down.

November 18, 2023
6:01 pm
Norman1
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It is not a good idea to buy bonds if one can't hold them to maturity. One could easily get hosed when selling the bonds because the order will only be routed to the broker's bond desk and not to a marketplace, like an exchange, where multiple buyers can compete for the bonds.

I've bought bonds from Scotia iTRADE that had an ask quote but no bid quote. That means the bond desk didn't want the bonds back in their inventory at all!

Yes, low-coupon short-term bonds have been much more tax efficient than a GIC, like Hubert's one-year cashable term deposits. That's why most of my Hubert one-year term deposits have been cashed and the funds placed in such bonds. It is more work as bonds don't auto-renew. Near maturity, one needs to start looking at what bonds one's broker has in inventory for reinvestment.

November 18, 2023
6:16 pm
Briguy
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Norman1 said
It is not a good idea to buy bonds if one can't hold them to maturity. One could easily get hosed when selling the bonds because the order will only be routed to the broker's bond desk and not to a marketplace, like an exchange, where multiple buyers can compete for the bonds.

I've bought bonds from Scotia iTRADE that had an ask quote but no bid quote. That means the bond desk didn't want the bonds back in their inventory at all!  

Yeah, good point. But if you buy a 3 month bond there wouldn't be too much likelihood of needing the money before maturation, so it could be a good lower tax alternative to the Hubert 1 yr cashable GIC, a HISA, a MM ETF like Cash.to , or an ISA like DYN6004

November 18, 2023
6:25 pm
savemoresaveoften
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Briguy said
That's actually a much more tax efficient method of earning than a 1 yr cashable GIC from Hubert, and fairly similar, except harder to cash in if you need the money in your example before Dec 5. Its a pretty safe bet that interest rates will stabilize for a while, and possibly go down 50 points over 2024, so most likely if you are forced to sell your bond before maturation you may even make money if the interest rates do go down.  

Keep in mind bond dealers at brokerage are there to get rid of their inventories, not to facilitate two way trade, which in the retail case, is to provide retail seller a market to sell their holdings. You will be in for a shock for what bid you will see if u do have the need to sell before maturity for whatever reason.
Biggest lie in bond trading when a bond salesperson tells u ‘my loss is your gain’ when they tell u a bond is a good buy.

November 19, 2023
8:25 am
Norman1
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Briguy said

… But if you buy a 3 month bond there wouldn't be too much likelihood of needing the money before maturation, so it could be a good lower tax alternative to the Hubert 1 yr cashable GIC, a HISA, a MM ETF like Cash.to , or an ISA like DYN6004

I agree. One needs to hold to maturity. As savemoresaveoften described, bond trades, both buys and sells, for retail clients don't work the same way as stock trades do.

If one can hold to maturity, those Government of Canada bonds with coupons of only ¼%, ½%, or ¾% and are now priced with a yield to maturity of 4% to 5% have very attractive after-tax returns.

November 19, 2023
1:48 pm
thegov
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Buying less than 90 day bonds you'll likely get hit with a relatively large accrued interest payment that you will have to pay when buying before getting the full 6 month payment on maturity.
At this time of year that may mean the accrued payment occurs in 2023 and the interest payment is in 2024 (unless you stay within 2023 maturity i.e. ~40 days) .
This may or may not be a good thing in your individual tax situation.

November 19, 2023
2:03 pm
Briguy
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thegov said
Buying less than 90 day bonds you'll likely get hit with a relatively large accrued interest payment that you will have to pay when buying before getting the full 6 month payment on maturity.
At this time of year that may mean the accrued payment occurs in 2023 and the interest payment is in 2024 (unless you stay within 2023 maturity i.e. ~40 days) .
This may or may not be a good thing in your individual tax situation.  

Interesting ! But hopefully the interest (coupon) rate of the bond is low if you chose a low coupon bond such as the 0.25 percent Canada bonds, so the tax impact is lessened even if you are earning more in 2024 than 2023.

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