Updated Checked by the Tax-Services.ca editorial team How we check
The net investment income tax is an American tax, not a Canadian one. The IRS charges 3.8% on investment income for higher earners, and there’s no matching surcharge in Canada. We’re guessing that’s why you searched, since the name is common in US search results. So this page covers both sides: what the US tax is, and how Canada taxes the same kind of income.
What is the net investment income tax?
It’s a 3.8% US tax on the lesser of two amounts: your net investment income, or the amount your modified adjusted gross income goes over a threshold. The IRS lists interest, dividends, capital gains and rental income as investment income. Wages and most self-employment income are outside it.
| US filing status | Threshold |
|---|---|
| Single or head of household | $200,000 |
| Married filing jointly | $250,000 |
| Married filing separately | $125,000 |
Those thresholds aren’t indexed, according to the IRS. If you’re a US citizen living in Canada, or you hold a green card, check the IRS page on whether the tax reaches you. We can’t tell you that from here.
The “lesser of” part is easy to misread, so here’s a quick illustration using only the numbers above. A single filer with $30,000 of net investment income and $215,000 of modified adjusted gross income is $15,000 over the $200,000 threshold. The lesser of $30,000 and $15,000 is $15,000, and 3.8% of that is $570. The tax doesn’t touch the other $15,000 of investment income.
Is there a similar tax on investment income in Canada?
No, not with that name. Canada adds your investment income to your other income and taxes the total at ordinary rates, federal and provincial together. What changes is how much of each type counts.
Interest is taxed in full, at your top rate. Eligible dividends are grossed up by 38% and then earn a credit. Other dividends are grossed up by 15%. The CRA’s guide to completing the T5 slip gives both gross-up rates. In plain numbers, a $1,000 eligible dividend counts as $1,380 on your return before the credit, and a $1,000 other dividend counts as $1,150.
And a capital gain is only partly included in income. For 2026 that share is 50% as far as we can tell, but the CRA page we read doesn’t print the rate, so check Schedule 3 before you rely on it. The plan to raise it to two-thirds was cancelled in a release dated 21 March 2025.
How much tax does $10,000 of investment income cost in Ontario?
Here’s what our calculators say for someone in Ontario with a $60,000 salary who gets an extra $10,000 in one year. The figures are extra income tax, worked out by comparing the year with and without the $10,000.
| Type of $10,000 | Extra tax |
|---|---|
| Interest | $2,965 |
| Other (non-eligible) dividends | $2,028 |
| Capital gain | $1,483 |
| Eligible dividends | $789 |
Same $10,000. The bill runs from about $800 to about $3,000. That gap is the reason where you hold an investment matters more than most people expect. You can test your own numbers in the dividend tax calculator and the capital gains tax calculator.
Put another way, Camille in Windsor and her brother in Barrie, both on a $60,000 salary, each earn $10,000 of investment income this year. If hers is interest and his is eligible dividends, they end up a few thousand bucks apart in tax before either of them has spent a cent of it. The gap between interest and eligible dividends in the table is $2,176.
Can you shelter investment income from tax?
A TFSA is the tax-free savings account, built for growth that isn’t taxed. Our 2026 data puts the annual limit at $7,000. An RRSP defers the tax rather than removing it, and you’ll pay on withdrawals, which the RRSP withdrawal tax calculator estimates. To see how a TFSA grows over the years, try the TFSA calculator.
A plain taxable account has no shelter at all, and every dollar of interest lands on your return.
What could go wrong with these numbers?
Your own year will look different from ours. Extra income can reduce benefits or push you into the next bracket, and the calculators don’t model benefits or refundable credits. The dividend figures rely on federal and Ontario credit rules for 2026, and the eligible and other dividend credits differ between provinces.
Also, we haven’t tested the US tax against any Canadian case. If you file in both countries, the Canada Revenue Agency and the IRS each have their own rules, and this page can’t settle how they fit together. For the wider Canadian rates, see personal income tax rates.
Sources, and how we checked them
The 3.8% rate, the thresholds and the list of investment income types come from the Internal Revenue Service page on the tax. The Canadian rules come from the Canada Revenue Agency and our own 2026 tax data, with the capital gains announcement dated 21 March 2025. The dollar examples are engine results, not quotes. This site is not connected to the CRA, the IRS or any government.
Frequently asked questions
Does Canada have a net investment income tax?
No. Canada taxes interest, dividends and capital gains as part of your ordinary income, at federal and provincial rates.
What is the US net investment income tax rate?
The IRS charges 3.8% on the lesser of your net investment income or the amount your income is over a threshold.
What are the US thresholds?
$200,000 for single filers, $250,000 for joint filers and $125,000 for married filing separately. The IRS says they are not indexed.
Which Canadian investment income is taxed least?
In our Ontario example on a $60,000 salary, eligible dividends cost $789 on $10,000, less than a capital gain at $1,483 or interest at $2,965.
Does the 2026 capital gains inclusion rate change?
We could not find the rate printed on the CRA page we read, so we treat it as 50%. The increase to two-thirds was cancelled in a release of 21 March 2025.
- RRSP, TFSA, FHSA and retirement income in Canada
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