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Is there a guaranteed capital gain product that is not in TFSA or RRSP?
January 12, 2023
8:30 pm
butterflycharm
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1- Is there a capital gain product that is not for TFSA or RRSP? Since HISA is 100% and capital gain is 50% tax looking for a product that gives same guaranteed interest income and principle guaranteed like GICs but has only 50% tax due to being capital gain.

2- Is it allowed to change a TFSA HISA to a TFSA GIC mid term without penalties?

January 14, 2023
5:22 am
RetirEd
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butterflycharm: For your second question, a TFSA HISA has no "term," * so you can at any time move it to any other investment your financial institution offers with no penalties or problems. Including CICs of course.

I have less to offer for your first question - I know that there are mutual funds and certain other investments designed to avoid capital gain (such as those making distributions into withdrawals of capital) and would expect there are others intended to work the other way, but I have no details.
RetirEd

* unless you are on a promotion that offers special rates only for a specific time period or if there are no withdrawals in such a period

January 14, 2023
12:01 pm
justsmileandnod
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butterflycharm said
Is it allowed to change a TFSA HISA to a TFSA GIC mid term without penalties?  

As RetirEd pointed out, HISAs are just bank accounts. So there is no term. At any time, you can move funds from the HISA to a GIC, while still within the TFSA contract (i.e. it's not a new contribution). You can do this online yourself, or if you're a little worried about accidentally withdrawing funds from the TFSA, then just call your FI and they will do it.

Also, in some cases you may also be able to change the term of a TFSA GIC. This isn't advertised. But a few times I have been allowed to collapse a TFSA mid-term (with interest to date) and put all of into a new term. Many FIs won't do this, but some will -- depends on a variety of factors, including how much $ is involved, and how much new money you pledge to bring in and park in other GICs (RRSP, unregistered, etc.). It never hurts to ask!

January 14, 2023
1:08 pm
Bill
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Years ago I bought bonds at a discount in the secondary market and when they matured I reported a capital gain so I could apply some capital loss carryforward amounts I had on hand against them (thought of it myself!). Not sure if it was "kosher" but CRA never reassessed me.

January 14, 2023
6:45 pm
Norman1
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That is the correct tax treatment for bonds that regularly pay interest (non-zero coupon).

Bonds: The tax implications (RBC Wealth) discusses that.

January 14, 2023
7:34 pm
Bill
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Yes, Example 2 is exactly what i did, including the accrued interest calculation.

Buying a bond at a discount and holding to maturity is the only simple guaranteed way of getting a capital gain (taxed at half the rate interest is) that I've thought of, maybe there are others?

January 14, 2023
10:26 pm
Norman1
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There are. But, the federal government has been targeting character conversion transactions:

Advisor.ca (March 19, 2019): Government targets investment funds that use forward contracts

January 15, 2023
7:48 am
AltaRed
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Horizons has ETF products that use derivatives to convert ordinary income to capital gains. HSAV is their Cash ETF that does that but these products must be purchased on stock exchanges through securities brokerages. Such products do have some operational (MER) costs to them

January 15, 2023
9:21 am
savemoresaveoften
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AltaRed said
Horizons has ETF products that use derivatives to convert ordinary income to capital gains. HSAV is their Cash ETF that does that but these products must be purchased on stock exchanges through securities brokerages. Such products do have some operational (MER) costs to them  

Just realized it’s unique to HSAV. Currently 4.75% expected yield tax as capital gain will be superior to a 1y 5.5% GIC !

Obv if it’s a non registered account.

January 15, 2023
9:58 am
RAV4guy
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Bill said:
"Buying a bond at a discount and holding to maturity is the only simple guaranteed way of getting a capital gain (taxed at half the rate interest is) that I've thought of, maybe there are others?"

An example of another investment that has a guaranteed capital gain, as of today, are split share preferred stocks. One example has the trading symbol DFN.PR.A. DFN.PR.A last traded for around $9.40/share and can be redeemed for $10.00/share on Dec. 1, 2024. In the meantime it also pays monthly distribution at the rate of $.55/year. Since I have owned this stock the distributions have all been eligible dividends.

Are split share preferred shares guaranteed like GICs? No, they are not. There is market price risk and general economic risk. I believe that, in general, split share preferred shares have a risk comparable to highly rated corporate bonds. Consult the names referenced in my last paragraph for more information on the risks. If you are prepared to accept this higher risk there is a chance for a higher reward.

Just like Bill's strategy, in post 4, split share preferred shares can be bought if you have an investment account and sometimes can be bought at a discount to the maturity price. While waiting for maturity you collect the income.

More information about these shares can be found in "Prefblog" and "Prefletter" by James Hymas and in the Finacial Wisdom Forum. DFN.PR.A is issued by Quadravest which also provides information on its website. There are other issuers as well.

January 15, 2023
12:52 pm
butterflycharm
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Bill said
Yes, Example 2 is exactly what i did, including the accrued interest calculation.

Buying a bond at a discount and holding to maturity is the only simple guaranteed way of getting a capital gain (taxed at half the rate interest is) that I've thought of, maybe there are others?  

But a bond is not a guaranteed interest product. Pretty much any trading in the market is capital gain at 50% and can be applied against capital losses.

January 15, 2023
12:55 pm
butterflycharm
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AltaRed said
Horizons has ETF products that use derivatives to convert ordinary income to capital gains. HSAV is their Cash ETF that does that but these products must be purchased on stock exchanges through securities brokerages. Such products do have some operational (MER) costs to them  

Can you explain what you mean by "convert ordinary income" to capital gain? like someone's T4 salary? I think you mean just regular ETFs which are taxed at 50%. I don't see an advantage to that in taxes than any other trading market product.

Is this an interest rate guaranteed but principle not guaranteed? If so that is a risky product. How can they provide 4.75% if market does bad? I thought out of pocket is not allowed or is it? if yes, then this is a legal ponzi scheme?!

January 15, 2023
1:04 pm
butterflycharm
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RAV4guy said
An example of another investment that has a guaranteed capital gain, as of today, are split share preferred stocks. One example has the trading symbol DFN.PR.A. DFN.PR.A last traded for around $9.40/share and can be redeemed for $10.00/share on Dec. 1, 2024. In the meantime it also pays monthly distribution at the rate of $.55/year. Since I have owned this stock the distributions have all been eligible dividends.

Are split share preferred shares guaranteed like GICs? No, they are not. There is market price risk and general economic risk. I believe that, in general, split share preferred shares have a risk comparable to highly rated corporate bonds. Consult the names referenced in my last paragraph for more information on the risks. If you are prepared to accept this higher risk there is a chance for a higher reward.

I find a contradiction in the two paragraphs above. Maybe I am reading it wrong. If they are 100% redeemable at higher price at maturity how does the market risk play?

From what I read there is a no guaranteed principle + guaranteed interest product that would qualify for capital gain tax (at 50%). It is either a product which carries market movement risk and that allows for capital gain tax OR it is not attached to market and is taxed at 100%. Is that the conclusion?

January 15, 2023
2:47 pm
AltaRed
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butterflycharm said

Can you explain what you mean by "convert ordinary income" to capital gain? like someone's T4 salary? I think you mean just regular ETFs which are taxed at 50%. I don't see an advantage to that in taxes than any other trading market product.

Is this an interest rate guaranteed but principle not guaranteed? If so that is a risky product. How can they provide 4.75% if market does bad? I thought out of pocket is not allowed or is it? if yes, then this is a legal ponzi scheme?!  

Ordinary income is my term for fully taxed income such as interest income. The proper term might be Other Income. What I was talking about with Horizon products was investment income that would otherwise be paid out as taxable distributions of different types of income is retained within the ETF product and eventually accrues into capital gains when the asset is sold.

In the case of HSAV, it is an ISA cash equivalent that would otherwise through off interest in one. It is retained within the ETF increasing its market value (and NAV). The interest rate is no more certain than it is for any HISA on this forum's list.

That is as close to a guarantee you can get on a product that produces capital gains (upon sale) instead of ongoing interest income.

Bill's comments on discount bonds is similar in that if you can buy a bond at a discount to par price of $100, you will receive $100 at maturity. Part of your return will be capital gains rather than 100% interest income.

January 15, 2023
8:55 pm
Lodown
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butterflycharm said

RAV4guy said
An example of another investment that has a guaranteed capital gain, as of today, are split share preferred stocks. One example has the trading symbol DFN.PR.A. DFN.PR.A last traded for around $9.40/share and can be redeemed for $10.00/share on Dec. 1, 2024. In the meantime it also pays monthly distribution at the rate of $.55/year. Since I have owned this stock the distributions have all been eligible dividends.

Are split share preferred shares guaranteed like GICs? No, they are not. There is market price risk and general economic risk. I believe that, in general, split share preferred shares have a risk comparable to highly rated corporate bonds. Consult the names referenced in my last paragraph for more information on the risks. If you are prepared to accept this higher risk there is a chance for a higher reward.

I find a contradiction in the two paragraphs above. Maybe I am reading it wrong. If they are 100% redeemable at higher price at maturity how does the market risk play?

From what I read there is a no guaranteed principle + guaranteed interest product that would qualify for capital gain tax (at 50%). It is either a product which carries market movement risk and that allows for capital gain tax OR it is not attached to market and is taxed at 100%. Is that the conclusion?  

Yes, there is market risk. This product is made up of 15 high dividend TSX stocks, so the rates quoted are not/cannot be guaranteed.

January 15, 2023
8:58 pm
RAV4guy
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butterflycharm said:
"I find a contradiction in the two paragraphs above. Maybe I am reading it wrong. If they are 100% redeemable at higher price at maturity how does the market risk play?"

They are redeemable at $10.00/share, at a maximum. According to the Dec. 30, 2022 Fund Update from Quadravest the Net Asset Value (NAV) of a unit was $15.45/unit. If by the date of redemption the NAV has fallen below $10.00 then those who opt for redemption will get less, at that lower amount less any expenses for selling the assets. The assets of the Fund are common shares of 15 large Canadian corporations. So that is the market risk and general economic risk.

butterflycharm said:
"From what I read there is a no guaranteed principle + guaranteed interest product that would qualify for capital gain tax (at 50%). It is either a product which carries market movement risk and that allows for capital gain tax OR it is not attached to market and is taxed at 100%. Is that the conclusion?"

I agree with you. I believe the tax laws are structured so that one cannot claim a capital gain unless one's capital is at risk. I do not believe that for the ordinary investor there is an investment product with a guaranteed risk free positive return that is taxed like capital gains. I would not say it is taxed at 100%. I would say that 100% of the income is included in your taxable income and the tax rate varies depending on your income level and the deductions you have.

January 15, 2023
11:01 pm
Norman1
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Risk has nothing to do with capital gains.

There's no risk to original investment when buying a Government of Canada bond or a GIC second hand at a discount to face value because its rate is below current market rates. The bond or GIC will mature and pay face value along the original interest.

January 16, 2023
5:15 am
savemoresaveoften
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Norman1 said
Risk has nothing to do with capital gains.

There's no risk to original investment when buying a Government of Canada bond or a GIC second hand at a discount to face value because its rate is below current market rates. The bond or GIC will mature and pay face value along the original interest.  

One can argue the tax system is designed so that capital gain which is usually a result of capital investment, is taxed at a lower rate to encourage the investment for the better. (Sorry a guaranteed zero risk return is not an investment for the better.)

January 16, 2023
9:58 am
butterflycharm
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Norman1 said
Risk has nothing to do with capital gains.

There's no risk to original investment when buying a Government of Canada bond or a GIC second hand at a discount to face value because its rate is below current market rates. The bond or GIC will mature and pay face value along the original interest.  

What is a GIC second hand? Where to buy that?
How does the government bond not move with the market?

January 16, 2023
11:31 am
Norman1
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Second hand GIC's and government bonds are available through investment dealers.

Canadian government bonds are usually only available second hand through investment dealers and not issued directly to the general public. Federal government, for example, cancelled its Canada Savings Bond program years ago. The Ontario government also cancelled its Ontario Savings Bond program.

The terms and conditions of bonds and GIC's are fixed when they are issued. A Government of Canada 8% bond issued 30 years ago will continue to pay 8% of its face value each year until it matures. Only thing that changes is the bond's trading price.

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