Investing and tax in Canada: keep more of what your money earns

Interest from savings accounts, GICs and bonds is taxed like salary: in full, at your top rate, every year, even if it is locked in.

Dividends from Canadian companies come with a tax credit, because the company already paid tax on the profit.

Capital gains are taxed only when you sell, and only half of the gain is included in income.

Ontario, 2026, on the next CAD 1,000 earned in a non-registered account. Dividends are eligible dividends from Canadian public companies.

• TFSA. No deduction going in, no tax on growth, no tax coming out. New room in 2026 is CAD 7,000, and unused room carries forward.
• RRSP. A deduction now, tax when you withdraw. New room is 18 percent of last year's earned income, up to CAD 33,810 for 2026.
• First home savings account. A deduction going in and tax-free coming out, for a first home. CAD 8,000 a year.
• RESP. For a child's education. The government adds 20 percent on the first CAD 2,500 you contribute each year.
• Non-registered account. No limits and no shelter. Every dollar of income is reported every year.

When you sell, the gain is the sale price less your adjusted cost base: what you paid, including commissions, averaged across every purchase of the same investment. Reinvested distributions raise it. Return of capital lowers it. Your broker's number is not always right, especially if you moved accounts.

Two rules catch people every year:

• The superficial loss rule. Sell at a loss and buy the same investment back within 30 days, before or after, and the loss is denied for now. It also applies if your spouse buys it.
• Attribution. Give money to your spouse to invest and the income is generally taxed back in your hands. There are proper ways to split income. Handing over cash is not one of them.

Capital losses are useful. They offset gains in the same year, can go back three years and can be carried forward without limit.

Canadian residents are taxed on income from anywhere in the world. Foreign dividends get no dividend tax credit, so they are taxed like interest, and tax withheld abroad can usually be claimed as a foreign tax credit.

If the total cost of your foreign property is more than CAD 100,000 at any time in the year, you must file Form T1135 with your return. That includes shares of foreign companies held at a Canadian broker and bank accounts abroad. It does not include investments inside an RRSP or TFSA. The form is required even if the investments earned nothing.

Business owners often leave profit in the company and invest it there. The money has only been taxed at the corporate rate, so there is more of it to invest. Two cautions:

• Investment income inside a company is taxed at a high rate up front, part of which is refunded when dividends are paid.
• Once a company and its associated companies earn more than a set amount of passive investment income in a year, access to the small business rate starts to shrink.

Whether to invest in the company, take the money out, or use a holding company is a planning question with numbers attached. Ask before the balance gets large.