Investment income in Canada is taxed differently depending on its type. Interest income is fully taxable at your marginal rate, while capital gains have only 50% inclusion (meaning half is taxed as income). Eligible dividends receive a dividend tax credit that reduces your overall tax bill. The amount you owe also depends on your province, your total income, and which account holds your investments (RRSP, TFSA, or non-registered). Canadian tax law recognizes three main categories of investment income, each with different tax treatment. Interest earned on bonds, GICs, savings accounts, and other debt instruments is fully taxable. If you earn $1,000 in interest, the full $1,000 is added to your income and taxed at your marginal tax rate (your highest rate bracket). This rule applies whether the interest is paid monthly, annually, or at maturity. When you sell an investment for more than you paid, the profit is a capital gain. Since 2024, only 50% of your capital gains are included in taxable income. If you sell shares for a $2,000 profit, you add $1,000 to your income. This partial inclusion rate applies to most investors in 2026. Capital losses can offset capital gains, helping reduce your tax bill.
No. All investment income (interest, capital gains, dividends) inside an RRSP grows tax-free while the money stays in the account. You only pay tax when you withdraw the money, potentially at a lower rate in retirement.
Capital gains are 50% taxable (you only pay tax on half the profit). Dividends are fully included in income but get a tax credit that reduces what you owe. Which is more tax-efficient depends on your income level and province.
No, investment losses can only offset capital gains, not other income. If you have no capital gains in a year, losses can be carried back three years or forward indefinitely to offset capital gains in other years.
No. All investment income earned in a TFSA (interest, capital gains, dividends) is completely tax-free, both while it grows and when you withdraw it. This makes TFSAs one of the best tax-sheltering tools available.
Yes, if the investment is in a non-registered account or RRSP. Interest and dividends must be reported in the year earned, even if you didn't sell or withdraw anything. Capital gains are reported only when you actually sell the investment.