Investment and Capital Gains Tax in Canada

Investment income is taxed differently depending on what kind it is. Interest is fully taxable, only part of a capital gain is taxed, and Canadian dividends carry a credit for tax the corporation already paid. The account you hold an investment in (TFSA, RRSP, FHSA or a taxable account) can matter as much as the type of income. This section explains each rule and links to the detail.

How each type of investment income is taxed

• Capital gains: only the inclusion rate share of a gain is taxed. You usually have a capital gain or loss when you sell capital property or are considered to have sold it, and you report it for the calendar year of that sale. Examples of being considered to have sold property include exchanging it for another property, giving it (other than cash) as a gift, having your shares or other securities converted or redeemed or cancelled by the corporation, an option you hold expiring, settling or cancelling a debt owed to you, transferring certain property to a trust, the property being expropriated, stolen or destroyed, changing its use, leaving Canada, and the owner's death. The gain is the proceeds minus your adjusted cost base and selling costs. Gains on qualified small business shares and farm or fishing property can be sheltered by the lifetime capital gains exemption.
• Dividends: Dividends from taxable Canadian corporations are grossed up and then reduced by a dividend tax credit; foreign dividends don't qualify. A dividend is an eligible dividend only when the Canadian corporation paying it to a resident of Canada designates it as one (eligible dividends usually come from Canadian public corporations and other corporations resident in Canada that are subject to the general corporate tax rate); other taxable dividends, usually from Canadian-controlled private corporations subject to the small business tax rate, are other than eligible (non-eligible) dividends. The taxable amount, reported on line 12000, is the dividend plus a gross-up of 38% for an eligible dividend or 15% for a non-eligible one, whose taxable amount also goes on line 12010. The federal dividend tax credit is 15.0198% of the taxable amount of eligible dividends and 9.0301% of the taxable amount of other dividends: the total of the credit amounts on your slips (T5 boxes 12 and 26, T3 boxes 39 and 51), or from the line 40425 chart of the Federal Worksheet without a slip. Outside Quebec, a provincial or territorial dividend tax credit, at the rates of the province or territory where you lived at the end of the year, is claimed on line 61520 of Form 428; Quebec residents claim Quebec's credit on their Revenu Québec return. The dividend tax credit guide explains the gross-up and credit; dividends vs capital gains compares the tax at different incomes.
• Losses: A capital loss is first applied against your taxable capital gains of the same year; what is left becomes a net capital loss, which can reduce taxable capital gains in any of the three years before or in any future year, but usually can't be deducted from other income. You report it on Schedule 3, and request a carry-back on Form T1A rather than amending the earlier return. Tax-loss harvesting covers realizing losses and carrying them back or forward. A capital loss is a superficial loss, and can't be deducted, if you or a person affiliated with you (such as your spouse or common-law partner, or a corporation either of you controls) buys, or has a right to buy, the same or identical property in the period from 30 calendar days before to 30 calendar days after the sale, and still owns it or has a right to buy it 30 calendar days after the sale. If you are the one who acquires the substituted property, you can usually add the denied loss to its adjusted cost base, so it reduces your gain or increases your loss when you sell it. The superficial loss rules page covers who counts as affiliated and what happens when a registered plan does the buying.
• Registered accounts (TFSA, RRSP): Interest, dividends and capital gains earned in a TFSA are generally tax-free, even when you withdraw them. Income earned in an RRSP is usually exempt from tax as long as the funds remain in the plan, and you generally pay tax when you receive payments from it. An RRSP withdrawal is taxed as income whatever the investments earned inside the plan.

Guides in this section

Capital gains and losses

• Capital gains inclusion rate
• Adjusted cost base: how to calculate it
• Superficial loss rules
• Tax-loss harvesting
• Lifetime capital gains exemption
• Capital gains tax calculator

Dividends and other income

• Dividend tax credit guide
• Dividend tax vs capital gains tax
• Tax on lottery and gambling winnings

Crypto and digital assets

• Crypto tax in Canada
• NFT taxes in Canada

Family, gifts and inheritances

• Attribution rules
• Gifting money to family
• Taxes at death (inheritance tax in Canada)
• Tax implications of receiving an inheritance

Related sections

• Foreign dividend withholding tax
• Asset location
• Stock options, ESPPs and RSUs
• Foreign tax credit
• Passive income in a corporation
• Real estate taxes