10 October 1989 External T.I. 58640 F - Proceeds of Disposition of Treasury Bills Capital Gains or Interest Income

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

October 10, 1989

19(1)

We are writing in reply to your letter of September 3, 1989, wherein you requested our opinion as to whether or not the proceeds from the sale of treasury bills, disposed of prior to maturity, could give rise to a taxable capital gain rather than an income gain which is interest income.

Our understanding of the situation set out in your letter is as follows:

24(1)

Our comments

The disposition of a Treasury Bill prior to maturity could give rise to a capital gain or capital loss to the extent that the proceeds of disposition, excluding the interest that is required to be included in income, exceeds of is less than the adjusted cost basis of the Treasury Bill.

For example, if you disposed of your Treasury Bill prior to maturity ad received proceeds at the same effective rate of return you would have received had the Treasury Bill been held to maturity, all of the proceeds in excess of your adjusted cost basis would be considered to be interest income.  If the effective rate of return was in excess of, or less than, the effective rate of return to maturity, a capital gain or capital loss (albeit small) would be realized on disposition.

In conclusion, should you sell your Treasury Bills shortly before maturity, as suggested in your letter, it is our opinion that all or substantially all of the proceeds, in excess of your adjusted cost basis, would be interest income and any capital gain or capital loss would be negligible.

With respect to our telephone conversation of September 25, 1989, you 24(1) Where in a particular taxation year, there are no taxable capital gains to offset a net capital loss, in whole or in part, paragraph 111(1)(b) of the Income Tax Act permits net capital losses to be carried back three years, and forward indefinitely.   Such net capital losses can only be offset against taxable capital gains realized in those years.

We hope these comments are of assistance to you.

Yours truly,

for DirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch