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Is there a guaranteed capital gain product that is not in TFSA or RRSP?
January 22, 2023
10:50 am
savemoresaveoften
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Bill said
Pretty hard to find something that yields higher than market yield and that's priced at a discount! I imagine you would have lots of competition trying to buy such an instrument, e.g. the brokerage firm itself.  

Yup.

That goes back to why one even bothers with 2nd hand GIC…

January 22, 2023
10:55 am
butterflycharm
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Norman1 said
No, the face value of the GIC does not change midway.

No-one is going to offer $20,000 for a pre-owned $20,000 2% GIC with two years left when one can place the $20,000 in a newly-issued two-year GIC that pays 5%.  

Re-read your scenario and yeah that is not a likely scenario. Better to discuss a likely scenario. How can a second hand GIC be capital gain and not 100% taxed?

January 22, 2023
10:58 am
butterflycharm
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savemoresaveoften said
Think what Norman is saying at the end you end up having the same amount of $ (principal + interest) if the YTM is identical.
One is only better off buying a second hand GIC if it yields higher than the market yield and only if you can buy it at a discount.

This is all based on the investment being in a TFSA which is taxed free 100%.  

Doesn't have to be higher interest if that is what you mean by higher yield. It could also be someone wanting out of a position and sells the face value at such low amount (high discount) that it beats the highest available interest rate on the market.

This all sounds like asset purchase that is fixed and I see nothing in this to be a risk to qualify for 50% capital gain.

January 22, 2023
10:59 am
butterflycharm
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savemoresaveoften said

Yup.

That goes back to why one even bothers with 2nd hand GIC…  

That is if one even can find 2nd hand GICs. Seems they are no where to be found. But this sounds like a good business opportunity for someone to become a dealer.

January 22, 2023
12:39 pm
Bill
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Probably not a big or very active market. If you go into your brokerage account you will see some info on how to sell any GICs. For example, in my Investor's Edge account it indicates the way to sell a GIC is to call them.

I know someone who sold some GICs via their big bank discount brokerage account, unexpected liquidity crunch, and I suspect the broker purchased them on terms advantageous to the broker, possibly for resale to client who had previously advised the broker they were in the market for such a thing when it comes up. Broker probably happy to shave some more off at time of resale.

Norman1 has previously indicated in this thread how to participate in this market, also his post #5 details the tax treatment of discount bonds re capital gains, etc (discount GICs would be the same).

January 22, 2023
1:13 pm
butterflycharm
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Bill said
Probably not a big or very active market. If you go into your brokerage account you will see some info on how to sell any GICs. For example, in my Investor's Edge account it indicates the way to sell a GIC is to call them.

I know someone who sold some GICs via their big bank discount brokerage account, unexpected liquidity crunch, and I suspect the broker purchased them on terms advantageous to the broker, possibly for resale to client who had previously advised the broker they were in the market for such a thing when it comes up. Broker probably happy to shave some more off at time of resale.

Norman1 has previously indicated in this thread how to participate in this market, also his post #5 details the tax treatment of discount bonds re capital gains, etc (discount GICs would be the same).  

Ways he mentioned do not work apparently. They all said they don't deal with 2nd hand GICs.

But this is interesting because if there is an easy process for this the GIC rates will balance very quickly with demand and supply. It should be like that. Right now the FIs set whatever they want.

January 23, 2023
7:16 pm
Norman1
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RAV4guy and I are quite clear how to access the secondary GIC market.

It doesn't work for you because you don't have the money required to interest a full service broker or to be referred to a full service broker through one of the Big 5 bank branches.

One of my relatives didn't even have to ask. During a visit to the branch for something else, a RBC Royal Bank customer rep asked he would be interested in meeting with an RBC Dominion Securities broker to discuss investments! The rep saw the amount of funds he had in GIC's and mutual funds at the branch.

January 23, 2023
9:33 pm
mordko
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Whenever this was offered, my intuition told me: “run”. Rightly or wrongly…

January 24, 2023
5:00 am
savemoresaveoften
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mordko said
Whenever this was offered, my intuition told me: “run”. Rightly or wrongly…  

Reminds me of the famous sales guy line ‘my loss is your gain’

January 24, 2023
7:23 am
Norman1
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It's not a zero sum arrangement. If that's the attitude one comes in with, then one should stay away. Losing such problem clients is no loss to the broker.

There has to be something worthwhile in it for both the broker and the client. If the client is just going to buy some exchange-traded ETF's he or she has already researched and decided on, then the full service broker isn't going to be able to add much.

If client just wants to rollover a $20,000 ladder of GIC's, then the broker and the brokerage will be divvying up just $50 of commissions a year. There really isn't much the broker could do for someone with $20,000 to invest besides a few mutual funds or a few commission-fee exchange-traded ETF's.

January 24, 2023
8:28 am
mordko
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The key problem with investment advice provided by full service brokers is that one needs to educate himself in order to evaluate the advice. After all, there are lots of professionals in the industry who have zero concern for anything other than own gain. Just letting them manage your money is silly; its your family that will have to live with the consequences. By the time you have educated yourself… you no longer need the advice.

Generally, its worse than zero sum arrangement. Not only do they charge ongoing fees year in year out regardless of performance, but they tend to complicate things to justify high fees and hence hurt returns.

Having said this, I accept that there might well be some very special one-off cases when its worth seeking this service for some people.

January 24, 2023
11:57 am
butterflycharm
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Norman1 said
RAV4guy and I are quite clear how to access the secondary GIC market.

It doesn't work for you because you don't have the money required to interest a full service broker or to be referred to a full service broker through one of the Big 5 bank branches.

One of my relatives didn't even have to ask. During a visit to the branch for something else, a RBC Royal Bank customer rep asked he would be interested in meeting with an RBC Dominion Securities broker to discuss investments! The rep saw the amount of funds he had in GIC's and mutual funds at the branch.  

What second hand GIC is available to you and at what rate now?

January 25, 2023
5:14 am
Norman1
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None. I closed my full service brokerage accounts decades ago.

When I did have the accounts, I wasn't doing GIC's through them.

January 25, 2023
7:38 am
Norman1
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savemoresaveoften said

Yup.

That goes back to why one even bothers with 2nd hand GIC…

Because of part of the return is taxed as capital gains instead of interest.

Yield to maturity maybe the same whether one buys a second hand $20,000 two-year GIC for $18,884.35 or puts the $18,884.35 in a freshly issued $18,884.35 two-year GIC.

But, the person buying the second hand GIC will have $20,000 - $18,884.35 = $1,115.65 of the return taxed as capital gains instead of as interest.

January 25, 2023
7:57 am
savemoresaveoften
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Norman1 said

savemoresaveoften said

Yup.

That goes back to why one even bothers with 2nd hand GIC…

Because of part of the return is taxed as capital gains instead of interest.

Yield to maturity maybe the same whether one buys a second hand $20,000 two-year GIC for $18,884.35 or puts the $18,884.35 in a freshly issued $18,884.35 two-year GIC.

But, the person buying the second hand GIC will have $20,000 - $18,884.35 = $1,115.65 of the return taxed as capital gains instead of as interest.  

except one needs the second hand GIC coupon to be way below mkt for the discount to be worth while, after crossing a dealer's bid/offer. Unless dealers are keen to get rid of it without charging a spread to sell it.
maybe worthwhile if $ amount is at least 6-figure, and a 5y GIC with 3% coupon issued at the beginning of the year.

January 25, 2023
9:30 am
butterflycharm
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Norman1 said
None. I closed my full service brokerage accounts decades ago.

When I did have the accounts, I wasn't doing GIC's through them.  

Probably was available decades ago but not now.
Anyone else with broker accounts can provide an example rate of what is available today in 2nd hand GICs?

January 25, 2023
9:36 am
butterflycharm
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Norman1 said

savemoresaveoften said

Yup.

That goes back to why one even bothers with 2nd hand GIC…

Because of part of the return is taxed as capital gains instead of interest.

Yield to maturity maybe the same whether one buys a second hand $20,000 two-year GIC for $18,884.35 or puts the $18,884.35 in a freshly issued $18,884.35 two-year GIC.

But, the person buying the second hand GIC will have $20,000 - $18,884.35 = $1,115.65 of the return taxed as capital gains instead of as interest.  

Technically the $1,115.65 is fixed income because it was known from the beginning that this amount will be paid at maturity.

Has there been a case where CRA said it is allowed to file this amount under capital gain? Sometimes CRA does not catch small amounts or goes after if filed like this but does not mean this is considered capital gain by them.

But you could be right as well since this amount should not show on T5 and it is buying asset that appreciates after some time. This is a nice puzzle.

There is nothing on the internet about this scenario. There is not much about second hand GICs too. I doubt anyone in Canada today sells second GICs or if does it should be very little volume. There probably would be a lot if rates go to 15% or so where people want to get out of position. Maybe the 1980s ~21% interest rates were when Norman1 saw 2nd hand GICs. It coincides with his decades ago broker account.

All this talk is fruitless when no 2nd GICs can be found today.

January 25, 2023
9:52 am
mordko
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This is no different to bonds trading below par (at discount) and the difference is classified as capital gains on maturity.

January 25, 2023
9:57 am
Bill
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butterflycharm, as I said before I know someone who sold a few large amount GICs via CIBC Investors Edge account a couple of years ago. And that when I signed in to my IE account a few weeks ago I was directed to call them if I wanted to sell any of my GICs (I had at that time, they've since matured). And I haven't checked recently but at my various other brokerage accounts I seem to recall a "sell" button beside any of the few GICs I've had.

So call Investors Edge and ask them how you can buy such things. If you're serious about knowing, which I don't really think you are.

The term "fixed income" is not relevant for income tax purposes, the term does not appear in the ITA. And the certainty of getting a capital gain has no impact on the fact that it is a capital gain. The capital gain on discounted bonds is reported as a capital gain (as has been pointed out here already), so same for discounted GICs. The person I referred to in my first sentence reported the gain as such and CRA was absolutely fine with it.

January 25, 2023
10:58 am
butterflycharm
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Bill said
butterflycharm, as I said before I know someone who sold a few large amount GICs via CIBC Investors Edge account a couple of years ago. And that when I signed in to my IE account a few weeks ago I was directed to call them if I wanted to sell any of my GICs (I had at that time, they've since matured). And I haven't checked recently but at my various other brokerage accounts I seem to recall a "sell" button beside any of the few GICs I've had.

So call Investors Edge and ask them how you can buy such things. If you're serious about knowing, which I don't really think you are.

The term "fixed income" is not relevant for income tax purposes, the term does not appear in the ITA. And the certainty of getting a capital gain has no impact on the fact that it is a capital gain. The capital gain on discounted bonds is reported as a capital gain (as has been pointed out here already), so same for discounted GICs. The person I referred to in my first sentence reported the gain as such and CRA was absolutely fine with it.  

If a sell button shows in investor edge but not a buy button then maybe only sold through their private dealers. They are probably trying to create an impression of a not often found commodity to higher their commission. Anyway, if buy button doesn't show then investor edge sounds not to be the solution. I don't want to sell. I am looking to buy.

Which GIC (Guaranteed Investment Certificate) products can I purchase in my CIBC Investor's Edge account?
CIBC Investor’s Edge offers a wide selection of CIBC and third-party GIC products. Here's how to search for a GIC product:

1. Sign on to CIBC Investor’s Edge

2. From the Trading menu, select Fixed Income

3. Select Buy GICs

4. Select the appropriate tab, either CIBC GICs, CIBC Market Linked GICs or Third-party GICs

5. Select the GIC from the details provided and follow the instructions to complete and submit your order.

Looks like they don't have an option for buy of 2nd hand.

I called Investor Edge and they said Sell button is for selling CIBC flexible GIC which is redeemable GICs which is sellable anyways through any back as that is cashing prematurely. So, NO, there is no selling of locked GICs and no buying of locked GICs through investor's edge.

Is there ANYONE else who has access to second hand GICs? Seems this is not a reality in Canadian market or not anymore.

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