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Interest tax in Canada is simple in one way and annoying in another. Every dollar of interest you earn on savings, GICs and term deposits is added to your income and taxed at your marginal rate, with no discount. On $2,000 of interest, someone earning $60,000 in Ontario pays about $593 of it away.
How does interest income get taxed?
Interest isn’t treated like a capital gain or an eligible dividend. There’s no partial inclusion and no credit. It lands on the same line as your pay, so it’s taxed at the rate of your top dollar. That’s why a bank account looks worse after tax than the advertised rate suggests.
Yes, really.
The marginal tax rate calculator shows what your next dollar costs. In our engine, an Ontario resident with $60,000 of taxable income sits at about 29.6%, and at $100,000 about 31.5%. So $2,000 of interest adds roughly $593 at the first level and $630 at the second. Those figures are income tax only. CPP and EI don’t apply to interest.
What do you have to report?
All of it. Even when you don’t get a slip. Banks send a T5 when the interest is large enough, and box 13 shows interest from Canadian sources. The CRA says you may not receive a T5 if the total is under $50, but you still have to report it. The total goes on line 12100 of your return.
| Situation | What to do |
|---|---|
| T5 slip with box 13 | Report the amount on line 12100 |
| No slip, under $50 of interest | Report it anyway |
| Interest on a foreign account | Convert to Canadian dollars at the Bank of Canada rate for the day it arose, and don’t subtract foreign tax from the income |
| Interest paid with your tax refund | Report it in the year you got it, as shown on your notice of assessment |
| Compound GIC that pays at maturity | Report the interest earned in each complete investment year, even if you haven’t been paid yet |
That last row catches people out. A five-year compound GIC gives you nothing to spend for years, yet the CRA expects the interest to show up on each anniversary. Check your paperwork in those years. Some institutions send a slip and some don’t, and the duty to report is yours either way, whether or not you ever touched the money.
Can you keep interest out of your taxable income?
Mostly by choosing where you hold the money. Income earned inside a TFSA is generally tax-free, and the 2026 TFSA dollar limit is $7,000. An RRSP delays the tax rather than removing it, and you can test the difference with the TFSA calculator and the RRSP calculator.
Before you hunt for a higher rate, work out what the interest is worth after tax. The interest calculator gives the gross figure. Take your marginal rate off it and you have the real number. A 4% GIC at a 30% marginal rate keeps about 2.8%. That’s the number to compare.
What about interest the CRA charges or pays you?
There’s a second meaning of the phrase. If you owe tax after the deadline, the CRA charges interest at its prescribed rate, which was 7% for July to September 2026 and stays 7% from 1 October to 31 December. Instalment interest is compounded daily, and the rate can change every three months.
It goes the other way too. On a refund you were owed, the CRA pays non-corporate taxpayers 5% for both of those quarters. That interest is taxable, so it gets reported on line 12100 the following spring.
The rates are set again each quarter, and we haven’t seen anything for 2027. Check the CRA page for the quarter you’re in. If a balance is heading your way, use the tax instalments calculator to plan payments before it grows at 7%.
Mistakes to avoid with interest tax
Forgetting a small account is the usual one. It’s only $30, so why bother? Because the rule has no minimum, and the bank may have reported it anyway.
The second is taking foreign tax off before you report foreign interest. Don’t. You report the full amount and claim the foreign tax as a credit. The third is netting: what you pay on a loan doesn’t cancel what you earn on savings, and we haven’t covered the separate rules for borrowing to invest.
Where the numbers come from
Reporting rules are from the Canada Revenue Agency page for line 12100 and its T5 slip guidance. Interest rates are from the CRA prescribed interest rate pages for the third and fourth quarters of 2026. The 2026 tax brackets are from the CRA rates page and the TFSA limit from the CRA TFSA pages. Tax examples come from our own income tax calculator engine, and they exclude credits other than the basic personal amount.
Frequently asked questions
Is interest income taxed more than dividends?
Interest is added to your income in full and taxed at your marginal rate. Dividends get a tax credit, so they usually cost less tax.
Do I report interest if I get no T5?
Yes. The CRA says you may not get a slip when the total is under $50, but the income must still be reported.
Where does interest go on my return?
On line 12100, together with other investment income.
Is TFSA interest taxable?
Income earned inside a TFSA is generally tax-free, and it doesn't reduce your contribution room.
What interest does the CRA charge on tax owing?
The rate is 7% for July to September 2026 and for October to December 2026. It is compounded daily and reviewed every three months.
- How Canadian income tax works: brackets and credits
How federal and provincial Canadian income tax stack up, what marginal and average rates mean, and how credits and deductions change your bill
Information only. This page is general information, not tax, legal or accounting advice. Tax-Services.ca is an independent publisher: we don't prepare or file tax returns or offer tax services, and we have no connection with the CRA, Revenu Québec, any government or any company named on this page. Check the figures that matter with an official source or a qualified professional.