Updated Checked by the Tax-Services.ca editorial team How we check
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.
This page is about the paperwork side: slips, anniversary dates and what to put on the return. If you mostly want the tax bill by income level, our separate page, “Tax on interest income in Canada: what you owe in 2026”, covers that angle.
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 total goes on line 12100 of your return.
You may not receive a T5 slip if the total investment income is less than $50, but you must still report the income.
CRA, Line 12100, Interest and other investment income, canada.ca
| 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.
What does a compound GIC look like year by year?
Say Ryo in Winnipeg locks $10,000 into a five-year compound GIC at 4%, compounded once a year, and nothing is paid until maturity. The interest earned is $400.00 in year one, $416.00 in year two and $432.64 in year three. Each of those amounts is reportable on the year’s anniversary, even though Ryo sees no cash. If his marginal rate is 30%, that’s about $120 of tax for year one, a surprise at tax time when no money has actually arrived. It’s a good reason to keep a note of the anniversary dates, and to hold a compound GIC in a TFSA when you can.
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%, so a $25,000 deposit earns $1,000 and leaves you $700 after $300 of tax. 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. The CRA’s prescribed interest rates for the fourth quarter of 2026 confirm the 7% and 5% figures above. 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.
Sources, and how we checked them
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