Taxation of Investments

If investments are held in a non-registered (not in an RRSP, TFSA or RESP) account, the following general rules apply to taxation of investment asset classes. Please consult your tax advisor for more specific advice on how your investment returns will be taxed.

CASH
Interest income is earned on cash balances and investments such as cashable GICs and cashable term deposits. Interest income is included in income at the full amount and is taxed at the individual’s marginal tax rate.

FIXED INCOME
Interest income is earned on all fixed income investments. If the interest does not pay out but accrues or compounds to maturity, it must still be declared and taxed on an annual basis.

Interest income is included in income at the full amount and is taxed at the individual’s marginal tax rate. If a fixed income investment is sold before maturity, a capital gain or loss might be incurred and capital gains taxation rules will apply (see equities below).

EQUITIES

Capital Gains

Capital gains are earned when an equity asset’s value has increased. Capital gains have to be reported when the proceeds from disposition (or deemed disposition) are greater than the adjusted cost base of the asset.

Capital gains are included in taxable income at 50% of the actual capital gain.

Capital losses occur when proceeds from disposition (or deemed disposition) are less than the adjusted cost base of the asset. Generally, capital losses can only be offset against capital gains for income tax purposes.

Capital losses can be carried back three years, or carried forward indefinitely and applied against capital gains.

Dividends

Dividends are earned on some equity investments such as common or preferred shares. Canadian dividend income is taxed less heavily than interest income.

Dividend income from foreign companies is not eligible for the dividend tax credit. It is taxed in the same manner as interest income (e.g. 100 per cent taxable).

US dividends are subject to US tax withholdings.