Imagine earning $100 from an investment. Whether that $100 comes from a savings account, a dividend-paying Canadian company or the sale of an investment, you might assume that the Canadian government taxes it in the same way.
But that is not how Canada’s tax system works.
In fact, the type of investment income you earn can make a significant difference to how much money you actually keep.
For an Ontario resident earning $75,000 in annual taxable income, an additional $100 of investment income could leave you with:
$70.35 from interest income.
$93.61 from eligible Canadian dividends.
$85.17 from capital gains.
That’s a difference of $23.26 between interest income and eligible dividends on just $100.
Why does this happen? The answer lies in how Canada’s tax system treats different categories of investment income.
Understanding these differences can help you make better investment decisions, structure your portfolio more efficiently and plan for long-term wealth creation.
Let’s explore each category and understand how much of your investment income you get to keep.
1. The $100 Investment Income Comparison: Three Different Tax Outcomes
Before examining the tax rules, let’s look at the numbers.
Assume you are an Ontario resident with $75,000 in annual taxable income and you earn an additional $100 through investments held outside a TFSA or RRSP.
Using the 2026 combined federal and Ontario marginal tax rates, the comparison is:
These figures illustrate three different tax treatments.
Interest income: Approximately 29.65% goes towards income tax.
Eligible dividends: Approximately 6.39% goes towards personal income tax after applicable dividend tax credits.
Capital gains: Approximately 14.83% goes towards income tax because only 50% of the gain is included in taxable income under the general capital gains rules.
The important lesson is that the source of your investment income matters just as much as the amount you earn.
Note: These are illustrative marginal tax calculations, not complete personal tax-return calculations. Other individual circumstances are not included.
