James, please correct me if my understanding is wrong.I bought some CMHC bonds, which are AAA federally backed government bonds, maturing in 2031 with a coupon of 1.10 and yield of 1.82%
These are great in a taxable account because they are discount bonds, paying a low coupon. Much of the return will come in the form of capital gains. So the after tax yield is far better than a GIC.
I routinely buy government bonds with low coupons in my non-registered account, and I think this is a juicy one.
I think what you said here is right. The 1.10% annual coupon is the only part which is taxable interest income (the highly taxed part). Of that overall yield, the other 0.7% is a capital gain. This is on an annual basis, anyway. There's also the small effect of what to do with the coupon payments over the following years.In your scenario, my marginal tax rate would be applicable on 1.10% and the balance of 0.72% would be treated as a taxable gain.