How investments are taxed

Outside a registered plan, investment income is taxed in three different ways. Interest is taxed like your other income, Canadian dividends are grossed up and then reduced by a dividend tax credit, and only part of a capital gain is taxed. So the same dollar of investment return can leave you with different amounts after tax.

Interest

Interest from bank accounts, GICs, term deposits, bonds and similar investments is part of your income, and you report the whole amount. Report it even if you don’t get a T5 slip; you may not get one for small amounts.

Interest that compounds over several years, as on many GICs, is taxed as it’s earned, not when it’s paid. You report the interest earned in each full investment year, even though you won’t receive it until the investment matures or you cash it in.

If you earn interest or dividends from outside Canada, report them in Canadian dollars. If foreign tax was taken off, you may be able to claim a foreign tax credit, but don’t subtract the foreign tax from the income you report.

Dividends from Canadian corporations

Dividends from taxable Canadian corporations are either eligible or other than eligible. Your slips report the two types in separate boxes; if you’re not sure which you received, ask the payer.

You don’t report the cash you received. You report a “taxable amount” that is grossed up: the actual dividend plus 38% for eligible dividends, or plus 15% for other dividends. You then claim a federal dividend tax credit, and a provincial or territorial one, which reduce your tax. The credit amounts are usually shown on your slips.

Provincial credit rates differ, so the combined result depends on where you live and your income; see the dividend tax credits table. Foreign dividends don’t qualify for the dividend tax credit.

Capital gains

You have a capital gain when you sell an investment, or are considered to have sold it, for more than its adjusted cost base (ACB, essentially its cost for tax purposes) plus the costs of selling it. Brokerage fees and commissions aren’t deducted on their own; they go into the gain or loss calculation instead.

You report a gain in the calendar year you sell, and only part of it is taxed. The inclusion rate for 2025 is 50%, so that share of the gain (the taxable capital gain) is added to your income. Keep records of what you paid and when, and the fair market value of anything you inherit or receive as a gift; you’ll need them to work out your ACB.

Gains you make by donating certain property, such as publicly listed shares, to a qualified donee can have an inclusion rate of zero. There’s a form for that, Form T1170.

Capital losses

A capital loss is the opposite: you sell for less than your ACB plus selling costs. The same inclusion rate applies, giving an “allowable capital loss”. It can only reduce taxable capital gains, not your other income. If your losses are bigger than your gains for the year, the difference becomes a net capital loss that you can apply to taxable capital gains in any of the three previous years or any future year. File Schedule 3 so the CRA records the loss.

Watch the superficial loss rule. If you, or someone affiliated with you such as your spouse or common-law partner, buy the same or identical property in the 30 days before or after the sale and still own it 30 days after, you can’t claim the loss. If you’re the one who bought the replacement property, the loss is usually added to its cost instead.

Borrowing and other costs

Most interest on money borrowed to earn investment income, such as interest and dividends, is deductible as a carrying charge, as are some fees to manage your investments. Fees for registered plans like an RRSP or TFSA aren’t. See Deducting interest on investment loans for the details.

Lending or giving investments to family

If you lend or transfer investments (or money to buy them) to your spouse or common-law partner, or to a related minor under 18 (including a niece or nephew), you may have to report the interest or dividends they produce. For a spouse or common-law partner, the capital gains can come back to you too.

In short

• Interest: fully taxable each year, even if it isn’t paid out yet.
• Canadian dividends: grossed up, then reduced by the dividend tax credit.
• Capital gains: only the inclusion-rate share is taxed, in the year you sell.
• Capital losses: only offset capital gains, but can be carried back three years or forward indefinitely.
• Inside a registered plan, different rules apply; see Registered savings plans compared.