How is passive income taxed in Canada? + MORE Nov 8th

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Passive income generally includes interest, dividends, rental income and capital gains. These income sources may be subject to different tax rates depending on your income level, province or territory of residence, and how the assets are held.

Income in non-registered accounts

Investment income earned in taxable investment accounts that are held personally is reported on your T1 tax return each year. Different types of incomes are taxable at different rates.

The most highly taxed source of income is interest or foreign dividend income. Both are taxed at your marginal tax rate, just like employment income. At $100,000 of income in Ontario, for example, a dollar of interest or foreign dividends is taxed at about 31%.

Foreign dividends typically have withholding tax before you receive the dividends. Foreign withholding tax is generally eligible to claim as a foreign tax credit on your tax return to avoid double taxation. You effectively get credit for the tax already paid to the foreign government…