Understanding the Taxation of Investment Income in Canada

Capital Gains

In Canada, capital gains refer to the profit you make when you sell an investment tor more than you paid for it. On the bright side, only 50% of capital gains are taxable. For example, if you bought a stock for $100 and sold it for $150, your capital gain would be $50, but only $25 of that gain is taxable.

Dividend Income

Dividends are a portion of a company's earnings that are paid out to shareholders. Dividends from Canadian corporations receive preferential tax treatment through the Dividend Tax Credit, and are taxed at a rate of 13.33%. Dividends from foreign companies, however, are subject to your full marginal tax rate.

Interest Income

Interest Income is the income earned from investments like bonds and savings accounts. Unlike capital gains or dividends, interest income is taxable at your full marginal tax rate. However, there are options where you can earn interest income tax-free, like Tax-Free Savings Accounts {TFSA).