Interest income tax (full marginal).
After-tax interest
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Tax owed
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Your breakdown
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The worst-taxed dollar in your portfolio
Interest from a GIC, a bond, or a high-interest savings account is the most heavily taxed form of investment income in Canada. There is no break, no credit, no partial exclusion. Every dollar of interest is added to your income and taxed at your full marginal rate, exactly like salary. This calculator does the plain arithmetic: it takes the interest you received and your marginal rate, and shows the tax owed and what survives. The point is to make visible how little of a headline yield you actually keep. The marginal rate to enter is your combined federal and provincial rate on the next dollar of income, since interest stacks on top of everything else you earn. Quebec residents should remember the federal abatement applies there, so a Quebec marginal rate is built differently than in the rest of the country, though the result is still your full combined rate on the interest.
No favourable treatment, unlike dividends or gains
Compare interest to its cousins and the gap is stark. Canadian dividends carry a dividend tax credit that softens the rate. Capital gains are taxed on only half their value, because the inclusion rate is 50 percent, so a gain effectively faces half your marginal rate. The proposed move to a two-thirds inclusion rate was cancelled, so 50 percent still stands. Interest gets none of this. A high earner in a 50 percent bracket keeps half of a capital gain after tax on inclusion, but only half of interest, full stop. That asymmetry is the entire reason interest belongs in a sheltered account.
$5,000 of GIC interest at a 43 percent rate
Say a GIC paid you $5,000 in interest and your marginal rate is 43 percent. The tax is simply 43 percent of $5,000, and the rest is yours.
The chart contrasts what you keep on that $5,000 across three income types at the same 43 percent rate. Interest is taxed in full, a dividend lands lighter after its credit, and a capital gain keeps the most because only half is taxable.
Put interest where it cannot be taxed
The fix follows directly from the problem: hold interest-bearing assets inside a TFSA, where the interest is never taxed, or an RRSP, where tax is deferred until withdrawal. Save your taxable, non-registered accounts for equities, whose capital gains enjoy the 50 percent inclusion rate and whose Canadian dividends get the credit. This asset-location move can add up over a lifetime without changing a single holding, only where each is parked. A common and costly mistake is the reverse: keeping a fat GIC in a non-registered account while holding index funds in the TFSA, which hands the Canada Revenue Agency the most heavily taxed income while shielding the lightly taxed kind. A practical note: banks issue a T5 slip for interest of $50 or more, but you must report all interest even below that threshold, including from foreign accounts.
Frequently asked questions
Do I owe tax on GIC interest before the GIC matures?
Often, yes, and it surprises people. On a multi-year compound GIC, the Canada Revenue Agency requires you to report the interest as it accrues each year, even though you receive no cash until maturity. So you can owe tax on income you have not yet touched. This accrual rule is another reason to hold compounding GICs inside a TFSA or RRSP, where the annual reporting headache and the tax both disappear.
Is interest from a foreign bank account taxed the same way?
The interest is taxed at your full marginal rate just like Canadian interest, and you must report it in Canadian dollars. If foreign tax was withheld, you can usually claim a foreign tax credit to avoid double taxation. Be aware that holding more than $100,000 in foreign property, including foreign accounts, triggers a separate reporting form, and the penalties for skipping it are steep.