Treasury bills are short term government debt.
This information is regarding treasury bills which are held outside of RRSPs or other registered accounts.
Treasury bills, or T-bills, are purchased at a discount from maturity value. The difference between maturity value and purchase price is taxed as interest income. If the T-bill is sold prior to maturity, a capital gain or loss will result.
When a treasury bill is held to maturity, the difference between proceeds and adjusted cost base (purchase price) is considered interest income for tax purposes. If the treasury bill is purchased in one year and matures in the next year, the amount of accrued interest must be calculated at December 31 to include in the income tax return for that year. If a treasury bill is disposed of prior to maturity, a capital gain or loss may result, as well as the interest income. Example:
The capital gain or loss is calculated as:
| proceeds | $19,975.00 |
| less interest | $ 165.76 |
| net proceeds | $19,809.24 |
| adjusted cost base | $19,750.00 |
| capital gain | $ 59.24 |
See also the Canada Revenue Agency (CRA) information on treasury bills and stripped bonds in their guide T4037 Capital Gains.
To see a comparison of the long-term return on T-bills versus other investments, see our article Historical Investment Returns on Stocks, Bonds, T-Bills.
Tax Tip: T-bills are better held inside a registered account, because 100% of the income is taxable when not in a registered account.