With tax season starting, it is time to roll up your sleeves and collect T slips and information on all income, from employment to business, property, pensions, and investments. The Canada Revenue Agency (CRA) requires you to report worldwide income earned in the 2025 tax year in your returns, even if you have already paid tax on it.
Among the many income sources, investment income needs special attention as you earn it in various forms: dividends, interest, and capital gains in and outside Canada. Some of this income is earned in tax-free registered accounts, and some income is accrued and not paid to you.
In this article, we will discuss various types of investment income and how to report them accurately on income tax returns.
Income From Your Investments
We often hear investment planning go hand in hand with tax planning. Two people can invest in the same instruments and earn the same investment income, but how they invest can bring a significant difference in after-tax returns. Your investment instrument, income, and the account through which you invested determine your tax liability.
Reporting Interest Income
Interest income is often earned on investments such as Guaranteed Investment Certificates (GICs), savings accounts, bonds, treasury bills, ETFs, and mutual funds. Your financial institution may pay you interest annually, quarterly, monthly, or reinvest it to compound returns, or pay the total interest on maturity.
Compounding Interest: Irrespective of whether you received the interest income or not, you have to report the interest that was earned in the 2025 tax year. For instance, a three-year compounded GIC reinvests the interest and pays it to you when cashed or matured. You still have to calculate the interest earned in 2025 and report it.
Interest on maturity: In case of a treasury bill that matured in 2025, you will report the difference between the price paid and proceeds received on maturity as interest income. This information is available on your T5008 slip or account statement. But if you sell it before maturity, you may also have to report a capital gain or loss.
Other interest income: Apart from direct investment, you must also report interest earned on any income tax refund you received in 2025. This information is available in the notice of assessment or reassessment. Another scenario is investing your tax-free Canada Child Benefit (CCB) payment into a trust or bank account in your child’s name and earning interest on it. That interest income is taxable and needs to be reported.
Finding and Reporting? You can find details of interest income above $50 in the T5 Statement of Investment Income, T3 Statement of Trust Income Allocations and Designations, and T5013 Statement of Partnership Income. This income should be reported on Line 12100: Interest and other investment income. Even if your T slips don’t show interest income, you should calculate it and report it.
Reporting Dividend Income
Dividend income is earned from stocks issued by eligible large Canadian corporations and non-eligible small companies, where business owners pay themselves dividends and salaries. Mutual funds and ETFs also give dividends. The CRA offers a federal dividend tax credit that makes it more tax-efficient than interest income.
Finding and Reporting? Check with the dividend payor to determine whether the dividend is eligible. You can find details of dividend income from the three interest income T slips (T5, T3, T5013), and the T4PS Statement of Employee Profit-Sharing Plan Allocations and Payments. If you did not receive the T-slip, you must calculate the dividend income and tax, and report it on lines 12000 and 12010.
Calculating dividend income and tax: Companies and investors both pay tax on dividends. To avoid double taxation, the CRA uses the “Gross-Up” mechanism. Eligible corporations pay higher tax, which you must add back by multiplying your dividend amount with 138% to reflect the gross income. From this amount, you deduct the dividend tax credit. The gross-up amount is 115% for non-eligible dividends, as these companies pay lower tax because of the small business deduction.
Calculations can get complicated. A professional accountant can help you with the calculations and ensure the correct amount is reported on tax returns.
Reporting Capital Gains from Sale of Investments
Unlike interests, capital gain is triggered when you sell your investment for a higher price than adjusted cost base (ACB). ACB includes the amount you invested, plus any reinvestments, minus withdrawals and capital losses. Capital gains are taxed favourably, making them more tax-efficient than dividends and interest.
Calculating capital gain tax: For 2025, 50% of the capital gain is added to taxable income and charged at the marginal tax rate. From January 1, 2026, the capital gains inclusion rate will change to 66.67% for capital gains over $250,000 and 50% for capital gains under $250,000 for individuals.
Special rules: Capital gains are more complicated than they appear, especially when they relate to lending or the transfer of property to a trust or to a person (spouse, common-law partner, or minor). There are different rules for capital gains from the sale of a principal residence, gifting shares or capital property to a charity, and transferring capital property.
Finding and Reporting? You can find details of capital gains from the sale of stocks, bonds, or ETFs in T5008 and Schedule 3. You may have to report capital gains on line 12700 from property that you loaned or transferred to your spouse or common-law partner, or to a trust for their benefit.
Reporting Foreign Currency Investment Income
If you earned investment income in foreign currency, you have to convert it into Canadian dollars and report the income. Generally, the Bank of Canada exchange rate for the date the amount arose is used. In certain circumstances, the average of exchange rates is used.
If you paid any foreign tax on foreign dividends and interest, you have to report the total dividend and claim a federal tax credit on line 40500 and provincial or territorial tax on Form 428.
Investment income earned in registered accounts, such as a First Home Savings Account (FHSA) and a Registered Retirement Savings Plan (RRSP), is tax-free and does not need to be reported on tax returns. However, withdrawals are taxable and should be reported in T4RSP/T4FHSA.
Contact Glenn Graydon Wright LLP in Oakville to Help You File Tax Returns
Understanding and reporting investment income is complex. A professional accountant can help you report your income accurately, and a tax advisor can help you build wealth tax-efficiently by choosing the right accounts and investment strategies. At Glenn Graydon Wright LLP, our accountants and tax advisors can provide services such as tax filing and tax planning. To learn more about how Glenn Graydon Wright LLP can provide you with the best accounting and taxation services, contact us today at 905-845-6633, or connect with us online.