Interest Income Taxation

Interest income typically comes from fixed-income investments such as Guaranteed Investment Certificates (GICs), bonds, Treasury bills, Bankerís Acceptances, commercial paper, promissory notes, and some mutual funds. When investors purchase investments like these, they receive interest in return for providing the lender with money.

Tax on interest income is charged at an individualís marginal tax rate and is treated the same way as employment income. Interest income is added to an individualís other sources of income, including employment income, pension benefits, rental income, and other types of regular income received.

Interest income is treated the less favourable when compared to income received from dividends or capital gains.†

Investors should not solely make investment decisions based on how income is paid.† Investors should make investment decisions based on their overall investment objectives, time horizon, level of experience and tolerance to risk.† Although tax effectiveness is important, ensuring an investment is suitable is more important.†

Example

GIC purchased for $50,000 at 5%

Interest income earned in the year = $2500

Amount of taxes paid: $2500 ◊ 40%* = $1000

Net return after taxes = $1500

* Assuming 40% marginal tax bracket

Investors seeking tax advice should always seek professional help.†

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Best GIC Rates

1 Year 1.05%
2 Year 1.35%
3 Year 1.85%
4 Year 2.00%
5 Year 2.05%

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