When you purchase a bond after its issue date, only the price of the bond and the commission are added to the ACB.\u00a0 This is less than the total amount paid because it does not include the accrued interest.\u00a0 As an example, let’s use the following quote for the purchase of $100,000 par value of\u00a0HSBC BANK CANADA 2.938% 2020\/01\/14<\/em> bonds:<\/p>\n Note that the bond is trading at a premium because the price is greater than the par value.\u00a0 The price is $102,063.00 and the commission is $100.00.\u00a0 Also, there is $965.92 of accrued interest to be paid to the seller, representing the interest accrued from January 14, 2014 (the date of the last interest payment) to May 9, 2014.\u00a0 This accrued interest would be deducted from the interest payment you receive on July 14, 2014 when calculating your net interest income for 2014.<\/p>\n When calculating the ACB, only the price and commission are considered, without the accrued interest portion of the payment.\u00a0 The initial ACB is therefore equal to:<\/p>\n (If the bonds were purchased at the time of issue for the par value of $100,000 then the initial ACB would simply be $100,000 plus any commissions paid.)<\/p>\n If the bond is purchased for the cost above on May 9, 2014 and held until maturity on January 14, 2020, you’ll receive $100,000 (in addition to all the interest payments including the final interest payment on January 14, 2020).\u00a0 This will result in a capital loss:<\/p>\n Let’s say, however, that instead of holding the bond until maturity you sell it on May 9, 2015 for a total price of $104,516.00 and a commission of $100.00.\u00a0 You would also receive an accrued interest payment of $965.92 for the interest accrued from January 14, 2015 to May 9, 2015, which would be taxable as interest income for 2015.\u00a0 This would result in a capital gain:<\/p>\n AdjustedCostBase.ca<\/a> can be used for calculating ACB and capital gains for interest-bearing bonds.\u00a0 This can be accomplished using “Buy” and “Sell” transactions.\u00a0 The “Buy” transaction on May 9, 2014 would be entered as follows:<\/p>\n Bonds are generally sold and quoted in units of $100 so the transaction is shown as the purchase of 1000 units for $102.063 each.\u00a0 But the transaction could also be shown as the purchase of 100,000 units for a price of $1.02063, as long as you’re consistent with using the same unit amount for all transactions.\u00a0 Note that the commission of $100 is included, but the accrued interest payment is not, as it has no affect on ACB.<\/p>\n Similarly, the sell transaction would be entered as follows:<\/p>\n![\"HSBC](\"https:\/\/www.adjustedcostbase.ca\/blog\/wp-content\/uploads\/hsbc_bond_quote.png\")
<\/a><\/p>\n\u00a0 $102,063.00 + $100.00\r\n= $102,163.00<\/pre>\n
\u00a0 $100,000.00 \u2014 $102,163.00\r\n= \u2014$2,163.00<\/pre>\n
\u00a0 ($104,516.00 \u2014 $100.00) \u2014 $102,163.00\r\n= $2,253.00<\/pre>\n
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