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Investment tax depends on what kind of income the investment pays. Interest is taxed like a salary. Only half of a capital gain counts as income. Dividends are grossed up and then get a credit. Take someone in BC earning $90,000: they’d give up 28.2 cents of each interest dollar, but only 14.1 cents of each capital gains dollar.
How is each kind of investment income taxed?
The CRA sorts investment income into a few buckets, and the bucket matters more than the product. A GIC pays interest. A stock can pay dividends and, when you sell it, a capital gain or loss. A mutual fund can pay all three.
These are the rates on your next dollar for a BC taxpayer earning $90,000, from our marginal tax rate calculator.
| Type of income | How it counts | Tax on the next dollar |
|---|---|---|
| Interest | Full amount is income | 28.2% |
| Capital gains | Half is income | 14.1% |
| Eligible dividends | Grossed up 38%, then a credit | About 1.6% |
| Other dividends | Grossed up 15%, then a credit | About 19.8% |
Treat the dividend rows as estimates. The federal gross-up figures are on the CRA’s pages, but we couldn’t confirm the 2026 provincial credit rates on an official page.
What happens to interest and GIC income?
You report it every year, and you report it even if you never got a slip. The CRA says a T5 might not arrive when the total is under $50, but the income still counts. A GIC that pays at maturity is a trap for this. The CRA wants the interest earned in each complete year of the investment, so a five-year GIC that pays at the end can create a tax bill every year while you can’t spend a cent of it.
So $1,000 of interest costs a $90,000 BC earner about $282. Use the GIC calculator to see the interest, and remember that this is before tax.
How do dividends work?
Dividends from Canadian corporations are odd. You add a bonus to the cash you received, called the gross-up, then claim a credit against the tax. The CRA tells you to multiply eligible dividends by 138% and other dividends by 115%. On a T5, box 25 is eligible and box 11 is the other kind.
Say you get $5,000 of eligible dividends. The taxable amount is $6,900. The dividend tax calculator estimates $81 of extra tax for that BC earner, but with that unconfirmed provincial credit, it’s a rough number. Foreign dividends don’t get the credit at all.
How are capital gains taxed?
Subtract what you paid, plus selling costs, from what you sold for. The CRA calls the first part the adjusted cost base. Half of the gain goes on your return, on Schedule 3. If you sell for $30,000 something that cost $20,000, the gain is $10,000, $5,000 is added to income, and the extra tax is $1,410 in BC at that $90,000 income.
Is it always half? A plan to raise it to two thirds was cancelled by the Prime Minister’s release of 21 March 2025. We couldn’t find a CRA page that states the 2026 rate outright, so we’ve assumed 50%. Try the capital gains tax calculator with your own numbers.
Losses help. A net capital loss can offset gains in the current year and the three before it, or carry forward without an end date. And you have to report a sale on your return even when it lost money.
Can you invest without paying this tax?
Within limits, yes. A TFSA has $7,000 of new room for 2026, and growth inside it isn’t taxed when you take it out. The TFSA calculator models it. An RRSP works the other way: you get a deduction now and pay tax on withdrawals. The limit for 2026 is $33,810, or 18% of last year’s earned income if that’s lower, and the RRSP calculator shows your saving. Interest fits best in these accounts, since it’s taxed the heaviest outside them.
Mistakes people make
Holding a GIC and forgetting the accrued interest is the first. Second is putting the wrong income in the wrong place, such as expecting the dividend credit on foreign stock. Third is forgetting records. The CRA may ask for proof of your cost base later, and it says to keep it but not to send it in.
Where the numbers come from
Gross-up rules, reporting rules and the capital gains method are from CRA pages. The TFSA and RRSP limits are from CRA limit tables, and BC rates are from the BC government. The examples come from our calculators. This site has no connection with the CRA or any government.
Frequently asked questions
Is interest from a GIC taxed every year?
Yes. The CRA says you report interest earned in each complete year of the investment, even if the GIC pays only at maturity and you got no T5.
How much of a capital gain is taxable?
Half, as we read the current rules. The proposed rise to two thirds was cancelled by the Prime Minister's release of 21 March 2025, but we found no CRA page that states the 2026 rate.
What is the dividend gross-up?
You multiply eligible dividends by 138% and other dividends by 115% to get the taxable amount, then claim a dividend tax credit.
Do I report a sale that lost money?
Yes. The CRA says you must file a return to report the sale either way, and a net capital loss can offset gains from the three previous years or later ones.
Do foreign dividends get the dividend tax credit?
No. The CRA says foreign dividends don't qualify for the credit.
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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.