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There are three different types of investment income – interest, dividends and capital gains. When investing outside an RRSP, it’s important to understand how each of these is taxed.
Interest income receives no special treatment and is taxed at a higher rate than both dividends and capital gains. Dividends and capital gains receive tax-favoured treatment and are taxed at approximately the same rate, depending on your taxable income. To reduce the tax paid on your investment income, you should consider investments that generate capital gains or Canadian source dividends.
Use this calculator to see the how interest, dividends and capital gains are taxed differently based on your taxable income and the province you live in.