# Accrued interest paid on bonds



## james4beach (Nov 15, 2012)

Often when you buy a bond, you'll pay the accrued interest to the seller because you're in between normal coupon dates. This number does not get rolled into the broker's T5 (they only report interest income paid to you). The accrued interest that YOU paid out is summarized in the broker's summary of interest income.

So the number is pretty easy to find, but I'm wondering where it should go on my tax return? I found two links:
http://howtoinvestonline.blogspot.ca/2011/03/how-to-calculate-interest-and-capital.html
http://www.taxtips.ca/personaltax/investing/taxtreatment/bonds.htm

The first link says to include accrued interest as an expense on Schedule 4, but I'm wondering where exactly.

The second link says "To determine the amount of interest income to include in your taxable income, deduct the accrued interest purchased (when you bought the bond) from the first interest income received." How would that be done in practice? If using tax software, you enter the T5 amounts verbatim. So at what point would you subtract accrued interest from the T5 amount? You can't just fake the T5 reported number in tax software.

The only consistent answer I arrive at is that accrued interest you paid out should be entered onto Schedule 4 line 221, "Carrying charges and interest expenses". Thoughts?


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## OnlyMyOpinion (Sep 1, 2013)

As your second link describes, the accrued bond interest is considered part of the the ACB. It is not considered interest you paid or claim as an expense. I'd just check and confirm that the interest reported on the T5 is the amount you were actually paid.


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## Numbersman61 (Jan 26, 2015)

OnlyMyOpinion said:


> As your second link describes, the accrued bond interest is considered part of the the ACB. It is not considered interest you paid or claim as an expense. I'd just check and confirm that the interest reported on the T5 is the amount you were actually paid.


The second link does not indicate that accrued interest on bond at purchase is part of ACB. It specifically states to deduct accrued interest purchased from the first interest income received.


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## james4beach (Nov 15, 2012)

Right, that wording about the ACB is phrased very poorly. What they're pointing out is that when you purchase a bond, your broker groups the accrued interest with the purchase cost. But the ACB amount should not include any interest-related amounts. i.e. your purchase looks like this and only the first line is the ACB

10,200 bond price <--- only this is the ACB
+ 300 accrued interest <--- this still has to be entered somewhere on taxes
= 10,500 total purchase price

So independent of the ACB, the question is: where does one enter that 'accrued interest' on taxes?



> It specifically states to deduct accrued interest purchased from the first interest income received.


Right, I agree that's what they're saying. But how do you do that in tax software? One enters each T5 slip. You can't just subtract negative interest off of them. So where does one enter this negative interest amount?

Furthermore, I have a bond I purchased late in 2014 so I did pay out accrued interest, but I did not receive any coupon interest again in 2014. I can't simply subtract the negative amount off of the next positive coupon because the next coupon payment is in 2015.


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## OnlyMyOpinion (Sep 1, 2013)

Sorry, I was referring to "_The amount that you pay for the bond will include the price of the bond, plus any interest accrued on the bond since the last interest payment date. The adjusted cost base (ACB) of your bond will be the total amount paid less accrued interest. _"
Maybe this link explains the treatment of the accrued interest better?: http://howtoinvestonline.blogspot.ca/2011/03/how-to-calculate-interest-and-capital.html


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## james4beach (Nov 15, 2012)

OnlyMyOpinion said:


> Sorry, I was referring to "_The amount that you pay for the bond will include the price of the bond, plus any interest accrued on the bond since the last interest payment date. The adjusted cost base (ACB) of your bond will be the total amount paid less accrued interest. _"
> Maybe this link explains the treatment of the accrued interest better?: http://howtoinvestonline.blogspot.ca/2011/03/how-to-calculate-interest-and-capital.html


Yeah that link seems to be more clear. It says accrued interest is "for inclusion as an expense on Schedule 4 of a tax return"

The only part of Schedule 4 that seems appropriate for including expenses is line 221. That's really my question... what line does this go on? I'm guessing 221 from Schedule 4.


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## AltaRed (Jun 8, 2009)

Yes. Been there done that.


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