Line 121 Interest and other investment income The interest you report depends on the type of investment you made and how often the interest is paid to you. On some investments, interest is paid or credited at least once a year. For example, interest on regular-interest Canada Savings Bonds ("R" bonds), bank accounts and Treasury Bills (T-Bills) is paid at least once a year. On other investments, interest builds up (accrues) over a period of time longer than one year, but you do not receive the interest until the investment matures or you cash it in. For example, on compound-interest Canada Savings Bonds ("C" bonds) or long-term investment certificates, you earn interest every year. However, you do not receive the interest until the bonds or the certificates mature or you cash them in. How to report · Use Part 11 of Schedule 5. · Enter your interest from Canadian sources and your foreign investment income. List each investment separately and attach copies of any information slips. · If it applies, use Form Tl CSB, Annnual Accrual Form for Compound Interest Canada Savings Bonds, to calculate the interest you have to report on "C" bonds from Series S41 to S44. Form Tl CSB is attached to the schedules. This section is divided into the following five parts. To figure out the interest and other investment income that you have to report, read the parts that correspond to the type of interest or other investment income that you have. If it applies, also refer to the dates that the investments were made. · Interest that is paid or credited to you at least once a year · Interest that builds up on investments made before 1990 · Interest that builds up on investments made after 1989 · Earnings on life insurance policies · Foreign interest and dividend income Canada Savings Bonds (CSBs)-If you have regular- interest "R" bonds, see the information under the heading "Interest that is paid or credited to you at least once a year." If you have compound-interest "C" bonds, see the information under the headings "lnterest that builds up on investments made before 1990" or "lnterest that builds up on investments made after 1989", depending on the date you bought the bonds. The Bank of Canada booklet "Canada Savings Bonds, Information for Bondholders" contains general infonnation about CSBs. You can get it at most financial institutions. Tax tip If you bought bonds through your payroll savings plan, you can deduct the interest charges you paid to buy the bonds. See line 221 for details. Interest that is paid or credited to you at least once a year Report in 1993, interest that is paid or credited to you in the year, even if you did not receive an information slip. This includes the interest on any income tax refund you received in 1993. This amount is shown on your Notice of Assessment or Reassessment. Joint accounts-Report in 1993 your share of interest from a joint account, based on how much you contributed. Example Monica and Bob received a T5 slip from their joint bank account, showing the $400 interest they earned in 1991. Monica had deposited $4,000 and Bob had deposited $1,000 into the account. Bob reports $80 interest calculated as follows: $1,000 (his share) x $400 (total interest) = $80 ------------------ $5,000 (total) Monica reports $320 interest calculated as follows: $4,000 (her share) x $400 (total interest) = $320 ------------------ $5,000 (total) In most cases, you have to report all the interest from a joint bank account in which: · all the money deposited was yours; or · the interest is from money you gave or lent to certain related people. For more details, see line 130(E). Note If you deposited Family Allowance payments into a bank account or a trust in your child's name, we consider the interest earned on those payments to be your child's income. Canada Savings Bonds-For regular-interest "R" bonds, interest is paid annually (as shown on a T5 information slip) and you have to report it each year. Treasury bills-If you disposed of a T-Bill in 1993, you will receive a T-BD Supplementary, Statement of Deposition Debt Obligation in Bearer Form or T5008, Statement of Securities Transactions. lf you disposed of a T-Bill at maturity, you have to report as interest the difference between the price you paid for it and the proceeds of disposition, shown on the T-BD Supplementary , Statement of Disposition Debt Obligation in Bearer Form or T5008, Statement of Securities Transactions. If you disposed of a T-Bill before maturity, you may also have to report a capital gain or loss. For details, get the Capital Gains Tax Guide. Interest that builds up on investments made before 1990 There are three possible ways to report interest that builds up over a number of years on investments made before 1990: 1. cash method 2. receivable method 3. annual accrual method Note You can change from the cash or receivable methods to the annual accrual method. However, once you start using annual accrual method for an investment, you cannot change to any other method for that investment For details, see "Changing your method" after the explanation the "annual accrual method". For more information on investments made before 1990, get Interpretation Bulletin IT-396, Interest Income. 1. Cash method Report all interest earned either in the year it is paid to you or at least after every third complete year since you made the investment If you disposed of an investment within the three-year period, you have to report all interest (except the interest you have already reported) in the year you receive it. Example Edie invested $6,000 in a five-year term deposit on March 14, 1988. She will not receive the interest until March 14, 1993. Because Edie is using the cash method, she has not reported any interest to date. Even though Edie has not yet received any interest, she still has to report on her 1991 return the interest she earned from March 14 1988 to December 31, 1991 (the end of the third complete year since she made the investment). When Edie receives the total interest on the term deposit in 1993 she will subtract the amount she already reported in 1991 and report the difference on her 1993 return. Note 1991 is the first year you have to report unpaid interest which has built up on investments made before 1982 that you previously have not reported. You have to report the interest built up from January 1 1982 to December 31, 1990. From then on you must report the interest at least every three years. However, these new rules do not apply to certain locked-in investments made before November 13, 1981. Canada Savings Bonds-You have to report the interest at least every three years for Series S40 to S44 "C" bonds. You should have reported the following amounts on your returns for each $100 of "C" bonds: · Series S40 bonds, $28.02 interest on your 1988 return, and $45.23 on your 1991 return; · Series S41 bonds, $29.39 interest on your 1989 return; · Series S42 bonds, $33.19 interest on your 1990 return; and · Series S43 bonds, $35.33 interest on your 1991 return. Note Series S41 bonds matured on November 1, 1993, and paid interest of $81.11 for each $100 bond. Of that amount, $10.25 was earned in the final year. Bonds from Series Sl to S41 have matured, and you no longer earn interest from them. If you have Series S42 through S44- compound-interest Canada Savings Bonds and you have not reported any interest from them, you should write and ask us to adjust your returns. For more details on how to do this, see the "Common questions and answers area starting on page 9 of this guide. 2. Receivable method Report interest in the year you are entitled to receive it rather than when you actually receive it. For example you will report the interest when a bond interest coupon matures rather than when you actually receive the payment. Under this method you have to report interest at least after every third complete year since you made the investment. 3. Annual accrual method Report interest yearly as you earn it regardless of when you are entitled to receive it or when it is actually paid. For example you may choose to report the interest from a compound-interest bond yearly as it builds up even though you will not receive the interest until you cash the bond. If you want to report interest on an investment using the annual accrual method say so in your return. Include a note identifying the investments that you have chosen to report annualy. From then on, you have to report interest from those investments using the annual accrual method. Changing your method - You can chhange from the cash or receivable methods to the annual accrual method. However. once you start using the annual accrual method for an investment, you cannot change to any other method for that investment. To change your method you: · include a note in your return stating which investments you have chosen to report annually; and · report all interest to the end of ~Ihe year of change, except the amount already reported. Example Using the example under "Cash method" Edie decides to change to the annual accrual method in 1992. She attaches a note to her 1992 return stating that she has chosen to report the interest using the annual accrual method. She then reports on her 1992 return the interest accrued to December 31 1992 minus the interest she already reported in 1991. Note If you have been reporting interest using the cash or receivable method you may not go back and change your method to the annual accrual method on prior-year returns. Canada Savings Bonds-Use Form Tl CSB to calculate interest for 1993 on C bonds up to and including Series S44. If you want to change from the cash method to the annual accrual method in 1993 also use Form Tl CSB. Form Tl CSB is attached to the schedules. Interest that builds up on investments made after 1989 You have to report annually the interest you earned on all investments made after 1989. The amount of income you report is based on the interest eamed during each complete investment year. For example if you made a iong-term investment on July 1. 1990 the first year's interest would be calculated to the end of June 1991. You may or may not receive a T5 slip showing the amount of interest earned. In either case report this amount on your 1991 tax return. You have to report interest earned from July 1991 to June 1992 on your 1992 return. Canada Savings Bonds-You have to report inlerest on compound-interest C bonds bought after 1989 on a bond- year basis (November to October). Therefore you calculate the first year's interest on 1990 Series S45 bonds at the end of October 1991. You will receive a T5 information slip showing the amount of investment inconne to report on your 1991 tax return. Do not report interest from Series S46 bonds on your 1991 return. You have to report interest from Series S46 bonds on your 1992 return. Earnings on life insurance policies You report the earnings which have built up on certain life insurance policies in the same way as for otber investments In all cases your insurance company will send you a T5 slip. For policies bought before 1990 you can choose to report built up earnings anually by telling your insurer in writing that you choose to do so. Foreign interest and dividend income Report gross foreign interesl and dividend income in Canadian dollars. Do not deduct from your foreign income the amount of tax withheld by the foreign country. For more information on how to convert your foreign income into Canadian funds, see the section "How to complete your return", on page 8. Tax tip If you paid foreign taxes on foreign investment income that you received, you may be able to claim a foreign tax credit. See lines 507 and 508 for de~ails.