October 10, 2012
Investors who have worked with me know that I prefer to buy guaranteed investment certificates (GICs) instead of bonds in taxable accounts. The reasoning is fairly straightforward, but not widely understood. Most individual bonds that currently trade in the marketplace are sold at a premium to their par value. What this means is that you initially pay more than $100 to purchase a bond, but only receive $100 at maturity (resulting in a capital loss on your investment). If our tax system allowed Canadians to offset their regular income with their capital losses, this would be a non-issue. As it currently stands, this is a significant issue that can negatively impact the portfolios of many Canadians who hold premium bonds (or bond ETFs and mutual funds) in their taxable accounts.