Dear Sirs:
Re: Gain on Sale of Treasury Bills
This is in reply to your letter of December 21, 1990, requesting confirmation that where treasury bills are sold prior to maturity, the difference between the sales proceeds and the sum of the cost of the treasury bill and interest accrued to date of sale is either a capital gain or loss.
Our Comments
The type of debt obligation described in paragraph 7000(1)(a) of the Income, Tax Regulations (the "Regulations") is one in respect of which no interest is stipulated to be payable on the principal amount of the debt obligation. This provision therefore applies to investments issued at a discount such as treasury bills.
If held to maturity, such debt obligations are redeemed for their face value and the interest deemed to accrue to the holder is the difference between the issue price and the redemption amount. Where, however, a prescribed debt obligation is disposed of prior to maturity, it is possible that a taxpayer may realize a capital gain or capital loss upon disposal. Accordingly, we confirm that where a treasury bill is disposed of prior to maturity, the amount of the gain or loss would be the difference between the proceeds of disposition and the sum of the cost of the treasury bill and the interest accrued to date of sale.
We trust our comments will be of assistance to you.
Yours truly,
for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch