T Bills

Question 1

What income types can a T-bill generate?

Answer 1

Interest income only from the discount; no dividends. If sold before maturity, there may also be a small capital gain/loss from price movement.

Question 2

Why is accrued interest recognized on sale of a T-bill?

Answer 2

Because the discount accrues as interest over time; CRA requires you to report the portion earned during your holding period as interest income at full marginal rates.

Question 3

Why add accrued interest to ACB for a T-bill sold early?

Answer 3

To prevent double taxation. You first tax the accrued piece as interest, then increase ACB by that same amount so only the residual price difference is capital gain/loss.

Question 4

What is the formula for accrued interest on a T-bill?

Answer 4

Accrued Interest = (Face − Purchase Price) × (Days Held ÷ Original Days to Maturity).

Question 5

What is the ACB at sale for a T-bill?

Answer 5

ACB = Purchase Price + Accrued Interest recognized to date.

Question 6

How do you compute the capital gain/loss on an early T-bill sale?

Answer 6

Capital Gain/Loss = Sale Proceeds − ACB (after adding accrued interest).

Question 7

What happens if you hold the T-bill to maturity?

Answer 7

Entire discount (Face − Purchase Price) is interest income; capital gain/loss is zero.

Question 8

T Bill Formula?

Answer 8

Canadian T-bill accrued interest:

AccruedInterest = ( FaceValue − PurchasePrice) × DaysHeld / TotalDaystoMaturity
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