Updated: April 2025  |  bremo.io financial guides

Investment Taxes in Canada 2025 — Capital Gains, Dividends and Interest

Understanding how investment income is taxed in Canada is essential to maximizing your after-tax returns. Different types of investment income are taxed at dramatically different rates — and where you hold your investments (TFSA, RRSP, or non-registered) determines how much tax you actually pay.

The Three Types of Investment Income

Interest Income

Taxed at the highest rate — your full marginal rate. $1,000 in interest income is treated exactly the same as $1,000 of employment income. This applies to savings account interest, GIC interest, and bond interest. In a non-registered account, this is the most tax-inefficient form of investment income.

Capital Gains

When you sell an investment for more than you paid, the profit is a capital gain. In Canada, only 50% of capital gains (the "inclusion rate") are included in taxable income for individuals up to $250,000 annually. Above $250,000 per year, the inclusion rate increased to 2/3 in 2024 budget changes. Example: $100 gain × 50% inclusion × 40% marginal rate = $2,000 tax.

Dividends

Canadian eligible dividends are "grossed up" and then receive a dividend tax credit, significantly reducing the effective tax rate. At moderate income levels, Canadian eligible dividends can be received at near-zero effective tax rates. Foreign dividends (including US dividends) receive no such credit and are taxed as ordinary income (with foreign tax credits available).

Account Location Strategy

Match each investment type to the most tax-efficient account:

• TFSA: High-growth equity ETFs (capital gains + dividends permanently tax-free)
• RRSP: US equity ETFs (avoids 15% US dividend withholding; tax-deferred)
• Non-registered: Canadian equity ETFs (eligible dividend tax credit applies; hold growth assets with low distributions here if TFSA/RRSP full)
• RRSP or TFSA (not non-registered): Interest-bearing products (bonds, GICs) — interest taxed highest outside registered accounts

Capital Loss Harvesting

Selling a non-registered investment at a loss creates a capital loss that can offset capital gains — reducing tax owed. Capital losses can be carried back 3 years or forward indefinitely. Inside a TFSA or RRSP, capital losses have no tax benefit — losses are simply lost. This is another reason to hold higher-risk investments in registered accounts where losses can't be harvested.

T3 and T5 Slips

Investment income is reported via tax slips. T5 slips cover dividends and interest; T3 slips cover trust distributions from ETFs and mutual funds. You'll receive these in February/March for the prior tax year. In TFSAs and RRSPs, investment activity doesn't generate tax slips.