Not all investment income is created equal in the eyes of the CRA. Canada taxes three major types of investment income in fundamentally different ways: interest income is taxed most heavily at your full marginal rate; dividend income from Canadian corporations benefits from dividend tax credits that reduce the effective rate; and capital gains receive the most favourable treatment, with only half of the gain included in income. Understanding these differences is critical for making tax-efficient investment decisions.
All investment income earned outside of registered accounts (RRSP, TFSA, FHSA, RRIF) is taxable in the year it is received or accrued. The specific tax slips you'll receive are T5 (interest and dividends), T3 (trust distributions including mutual funds and ETFs), and T5008 (securities transactions for capital gains reporting).
Interest income from bank accounts, GICs, bonds, and savings accounts is included in your income at 100% and taxed at your marginal rate. There is no preferential treatment. At a combined federal-provincial marginal rate of 48% in Alberta (for income over $355,845), every $1,000 of interest income costs $480 in tax.
Because interest income bears the heaviest tax burden, it is generally the most beneficial type of investment income to hold inside a registered account (RRSP, TFSA, or RRIF) rather than a taxable account. The tax savings from sheltering high-tax interest inside a TFSA or deferring it inside an RRSP are compounded over time.
Dividends from Canadian corporations come in two types, each with different tax treatment:
Paid from income taxed at the general corporate tax rate. The dividend is grossed up by 38% for federal purposes (to approximate the pre-tax corporate income), and then a 15.02% federal dividend tax credit is applied. In Alberta, the combined effective tax rate on eligible dividends is approximately 24–34% depending on total income — significantly lower than interest income at the same income level.
Paid from income taxed at the small business rate. The gross-up is 15%, and the federal dividend tax credit is 9.03%. The effective tax rate on non-eligible dividends in Alberta is higher than on eligible dividends, though still generally below the rate on interest income at most income levels.
When you sell an investment for more than you paid for it, the difference is a capital gain. For 2025, 50% of capital gains are included in your taxable income — the other 50% is permanently tax-free. This is called the capital gains inclusion rate.
Capital losses can be used to offset capital gains in the same year. If your capital losses exceed your capital gains in a year, the net capital loss can be carried back three years or carried forward indefinitely to offset future capital gains.
Important: capital gains are only realized (and taxable) when you sell. Unrealized gains on investments you continue to hold are not taxed — making buy-and-hold investing inherently tax-deferring.
| Income Type | Included in Income | Approx. Effective Rate (33% marginal) | Approx. Effective Rate (48% marginal) |
|---|---|---|---|
| Interest income | 100% | ~33% | ~48% |
| Eligible dividends | 138% grossed up, with credit | ~9% | ~34% |
| Non-eligible dividends | 115% grossed up, with credit | ~21% | ~43% |
| Capital gains (50% inclusion) | 50% | ~16% | ~24% |
Dividends from foreign corporations (like US stocks) are taxed as ordinary income at your full marginal rate — they do not qualify for the Canadian dividend tax credit. US dividends paid to Canadian residents are also subject to a 15% US withholding tax under the Canada-US tax treaty, which can be claimed as a foreign tax credit on your Canadian return.
Foreign interest and capital gains are treated similarly to Canadian equivalents — interest is fully included, capital gains get the 50% inclusion. Any foreign taxes paid can be claimed as a foreign tax credit to reduce double taxation, but the mechanics require careful calculation, especially for multiple countries.
Investment tax planning — deciding what to hold, where to hold it, and when to realize gains or losses — can meaningfully increase your after-tax wealth over time. Swift Accounting works with Calgary investors to review their portfolio allocation, ensure all investment income is accurately reported, optimize registered vs. non-registered account use, and manage capital loss harvesting. Book a consultation with our team to review your investment tax situation.