Other income determines your marginal tax bracket.
Interest Income
$50,000.00
Estimated Tax
$16,070.51
After-Tax Amount
$33,929.49
Effective Tax Rate
32.1%
| Income Type | Tax | After-Tax | Rate |
|---|---|---|---|
Interest Income | $16,070.51 | $33,929.49 | 32.1% |
Eligible Dividends | $1,122.09 | $48,877.91 | 2.2% |
Non-Eligible Dividends | $2,950.19 | $47,049.81 | 5.9% |
Capital Gains | $7,414.30 | $42,585.70 | 14.8% |
Interest
Tax: $296.50
Keep: $703.50
29.6% rate
Eligible Div.
Tax: $0.00
Keep: $1,000.00
0.0% rate
Non-Eligible Div.
Tax: $0.00
Keep: $1,000.00
0.0% rate
Capital Gains
Tax: $148.25
Keep: $851.75
14.8% rate
Understanding how different types of investment income are taxed in Canada
Eligible dividends are paid from corporate income that has been taxed at the general corporate rate (approximately 26.5% combined). The gross-up and dividend tax credit mechanism is designed to integrate corporate and personal tax so that the total tax burden is roughly the same as earning the income directly. The 38% gross-up reflects the estimated corporate tax already paid, and the dividend tax credit offsets the double taxation.
Eligible dividends are paid by public corporations or Canadian-controlled private corporations (CCPCs) from income taxed at the general corporate rate. They receive a 38% gross-up and a larger tax credit. Non-eligible dividends are typically paid from CCPC income taxed at the small business rate. They receive a 15% gross-up and a smaller tax credit. The corporation designates the type when declaring the dividend.
Capital gains are taxed at a preferential rate through the inclusion rate mechanism. For 2025, the first $250,000 of net capital gains are included at 50% (only half is taxable). Gains above $250,000 are included at 66.7%. This makes capital gains one of the most tax-efficient forms of investment income. Additionally, you can time when to realize capital gains, unlike other income types.
Tax integration is the principle that income should bear the same total tax burden regardless of whether it is earned directly by an individual or through a corporation. The Canadian dividend tax credit system aims to achieve this integration by crediting shareholders for corporate tax already paid. In practice, integration is not perfect -- there are slight advantages or disadvantages depending on the province, income type, and tax bracket.
A Tax-Free Savings Account (TFSA) shelters all investment growth from tax -- interest, dividends, and capital gains earned within a TFSA are completely tax-free, and withdrawals are not taxable. The 2025 annual contribution limit is $7,000, with cumulative room of $102,000 (if 18+ since 2009). High-growth investments benefit most from TFSA sheltering since the tax savings are proportional to the growth. Interest-bearing investments are also good candidates since interest is fully taxable outside a TFSA.
Asset location is the strategy of holding different investment types in the most tax-efficient account. General guidelines: hold interest-bearing investments (bonds, GICs) in registered accounts (RRSP/TFSA) where they grow tax-free; hold Canadian dividend-paying stocks in non-registered accounts to benefit from the dividend tax credit; hold US dividend stocks in RRSPs to benefit from treaty withholding tax exemption; and hold growth stocks in TFSAs for tax-free capital gains.
RRSP contributions are tax-deductible, and all growth within the RRSP is tax-deferred until withdrawal. When you withdraw, the full amount is taxed as regular income -- regardless of whether the growth came from interest, dividends, or capital gains. This makes RRSPs ideal for interest-bearing investments (since interest is the highest-taxed income type) and for individuals who expect to be in a lower tax bracket in retirement.
Investment income must be reported on various schedules of your tax return: T5 slips for interest and dividends from Canadian sources, T3 slips for income from trusts (including mutual funds), Schedule 3 for capital gains and losses, and T1135 for foreign property over $100,000. All investment income must be reported in the year it is earned (or deemed earned), even if reinvested. Keep detailed records of your adjusted cost base for all investments.
CRA-Aligned: This calculator uses official CRA rates, dividend gross-up factors, and capital gains inclusion rates for the 2025 tax year. Tax on investment income varies by province and total income. Consult a tax professional or financial advisor for personalized investment tax planning.
Disclaimer: This calculator provides estimates based on current CRA rates and thresholds for the 2025 tax year. It does not constitute professional tax, financial, or legal advice. Your actual liability may differ depending on your individual circumstances. Always consult a qualified accountant before making financial decisions. Read our terms
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