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Understanding Interest & Income Tax

One question that is burning on everyone’s mind this time of year is how they report interest income from bonds and GICs that are held outside of their RRSP or RRIF.

If you purchase GICs or other interest bearing securities you must declare and report the interest that has accrued to the anniversary date of your original purchase. This means that you are going to report as income and pay tax on interest that you may not have yet received or may not receive for some time.

For example, on July 1, 2008 John purchases a GIC for $10,000 that pays $1,575 after 5 years. John would be required to report $525 of interest income on his 2009 (and not on his 2008) income tax return. This represents the interest earned from July 1, 2008 to the end of June 2009.

John should receive a T5 from his financial institution showing the amount earned on his investments.

See also Line 121 – Bank accounts, term deposits, guaranteed income certificates (GICs), and other similar investments [1]