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How is GIC interest taxed?
January 17, 2024
10:32 am
gicbits
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When would I be taxed in this scenario?

On July 1 2023 I bought a 1 yr GIC. $10,000 at 5%.
As of Dec 31 2023 the vale is $10,225 but it's still locked in for another 6 months.

Will I be taxed $225 on my 2023 returns for the interest that has accrued as of Dec 31 2023 or will I be taxed $500 in 2024 for the total interest earned on this GIC once it matures on July 1 2024?

January 17, 2024
10:37 am
AltaRed
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The latter....

January 17, 2024
11:15 am
gicbits
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Are you sure? Tangerine has taxed me for 2023.

January 17, 2024
11:32 am
AltaRed
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interest is calculated and accrued on each anniversary date of the GIC.

For a one year GIC, that would be on the date the GIC matures and taxed in the year received. In your case July 2024 and reported on your 2024 tax return. You would receive a T5 in 1Q2025 for that interest.

For a GIC with a term greater than 1 year in duration, the first accrual date for taxation purposes is the year of the first anniversary date and every anniversary thereafter regardless of whether you received interest (annual pay) or did not receive interest (compound GIC).

Tangerine is wrong if they have issued you a T5 for the accrual up to Dec 31, 2023.

January 17, 2024
11:32 am
gicbits
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I double checked and I overlooked something. My bad.

Thanks.

January 17, 2024
1:29 pm
NorthernRaven
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Some FIs (including Oaken and EQ) will show a "fair market value" (or some similar name) for your GIC, which represents the prinicpal + notional interest to date. Think of it sort of like you would for an unrealized capital gain - it's the number you would get if you sold today, but it isn't actually reportable on a tax slip until you sell it, or in the case of the GIC they actually pay out (or compound) the interest.

And of course with a monthly pay GIC, they are paying out each month and would trigger a T5 for that first tax year, unlike the annual-pay case.

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