You’ll need to pay taxes when you earn dividends, interest and/or capital gains from stocks held in taxable (unregistered) accounts.
Find out how much you might need to pay for different types of investment income, and learn what taxes on stock gains you’ll pay based on what type of investor you are and what income bracket you’re in.
Do I have to pay tax on stock gains in Canada?
You’ll need to pay taxes on stocks in Canada that generate investment income in a taxable account. The amount of taxes on stock gains you have to pay will depend on 3 main factors:
Investment income type. You can make investment income in the form of interest, dividends or capital gains. The type of investment income you make can affect how much you have to pay in taxes on stocks in Canada.
Investor type. You’ll need to pay your taxes on investment income differently based on whether you’re a normal investor or a day trader (which means you buy and trade stocks on a daily basis as your primary form of income).
Tax bracket. Your tax bracket will also define how much you have to pay in taxes on stock gains. The higher your gross income (minus deductions), the more you’ll have to pay in taxes on stocks in Canada.
Do I need to pay taxes on investments in tax-free accounts?
You won’t need to pay taxes on stock gains in tax-free accounts such as RESPs, RRSPs or TFSAs. The only way you might have to pay taxes on your investments is if you use these accounts for day trading or to generate business income.
Factor 1: How taxes work by investment income type
The taxes on stock gains you need to pay based on investment income type are outlined below:
Income type
How it works
Amount taxable
Example
Interest
You’ll usually make interest on investments such as government or corporate bonds.
Any interest you make on investments is 100% taxable.
If you make $1,000 in interest on your investment and your marginal tax rate is 30%, you’ll pay $300 in taxes on the interest you earn.
Dividends
Dividends are a cash payment you receive when a dividend-paying company you invest in makes money.
Dividends may be eligible for a dividend tax credit. The credit you get will vary based on your tax bracket and the dividend rates in your province. Note: This tax credit doesn’t apply on foreign stocks.
If you make $1,000 in dividends on your investment and your marginal tax rate is 30%, you’ll pay only a portion of this rate for eligible dividends. For example, you might pay only 15% (or $150) on income from dividends.
Capital gains
You’ll pay capital gains tax in Canada on the difference when you buy a share and then sell it for a higher price.
50% of the value of any capital gains are taxable. Note: This capital gains tax reduction doesn’t apply for day traders (who pay 100% tax on income from capital gains).
If you buy a share for $1,000 and sell it for $2,000, you’ll pay 50% capital gains tax on the difference (in this case, $1,000). If your marginal tax rate is 30%, you would only pay this on $500 as capital gains tax (equal to $150 in this case).
Factor 2: How taxes work by investor type
The type of investor you are will influence the taxes on stocks in Canada you have to pay for different types of investment income.
Investor. A traditional investor looks to make money on the stock market by making long-term investments. The CRA offers a 50% reduction on capital gains and other tax benefits for traditional investors to help offset the taxes they need to pay.
Trader. Traders buy and sell stocks in a short timeframe to earn a small profit on each trade and compound those gains over time. The CRA taxes all of a trader’s income as business income (meaning they pay full taxes on all earnings – and are not eligible for a reduction on capital gains).
Factor 3: How taxes work by tax bracket
You’ll pay a higher amount of tax as your gross income increases. This means if you claim investment income and you’re already at the highest tax bracket, you’ll pay more taxes on stocks in Canada than someone with the same investment income at a lower tax bracket.
Example of taxes charged by tax bracket for different investments
Let’s say you have a marginal tax rate of 47% based on your income and your parents have a marginal tax rate of 20%. If you both make $20,000 in investment income for 2021, you’ll pay different taxes on stocks in Canada (outlined in the table below).
Type of investment income
Tax rates for you
Tax rates for your parents
Interest
$9,400
$4,000
Dividends
Varies – but higher for you
Varies – but lower for parents
Capital gains
$4,700
$2,000
As you can see, your parents will pay less tax than you on all investment types given their lower annual income and tax bracket.
How to calculate taxes on stocks in Canada
You can calculate tax on stock gains in Canada by figuring out what type of investor you are, what type of investment income you’ll be making and what your tax bracket is.
Example 1: Taxation as an investor
Bob makes $110,000 per year in BC – with a marginal tax rate of 38.29%. He needs to claim $5,000 for each type of investment income on his taxes, and he is classified as an investor.
Type of investment income
Income
Taxation income
Marginal tax rate
Tax
Interest
$5,000
100% of $5,000
(=%5,000)
38.29%
$1,915
Dividends
$5,000
40% of $5,000 for this example (=$2,000)
38.29%
$766
Capital gains
$5,000
50% of $5,000 (=$2,500)
38.29%
$957
Example 1 total tax = $3,638
Example 2: Taxation as a trader
Rick makes $110,000 per year in BC – with a marginal tax rate of 38.29%. He needs to claim $5,000 in each type of investment income on his taxes, and he is classified as a trader.
Type of investment income
Income
Taxation income
Marginal tax rate
Tax
Interest
$5,000
100% of $5,000
(=%5,000)
38.29%
$1,915
Dividends
$5,000
40% of $5,000 for this example (=$2,000)
38.29%
$766
Capital gains
$5,000
100% of $5,000
(=%5,000)
38.29%
$1,915
Example 2 total tax = $4,596
As you can see, traders are taxed more than investors since they pay 100% for capital gains tax in Canada (instead of 50%).
How are US and international stocks taxed in Canada?
US and international stocks are typically taxed similarly to Canadian stocks. The only difference is that you need to convert the currency of the income you earn into Canadian dollars before you claim it.
Ordinarily, you’d have to pay withholding taxes for US stocks, even if your investments are held in a tax-free account. However, an agreement between Canada and the US allows Canadian individuals to avoid being taxed on the same US stock earnings in both countries.
By submitting a W-8BEN form to the US Internal Revenue Service, investors can avoid paying withholding tax and pay income tax to the CRA alone. Only individuals can use this form, not businesses.
The following taxation structure applies to foreign investments:
Interest. Taxed for 100% of the income you generate from foreign interest, and you may be required to pay a 10% withholding fee for US stocks.
Dividends. Taxed for 100% of the income you generate from dividends, and you may be required to pay a 15-30% withholding fee for US stocks.
Capital gains. Taxed for 50% of the income you generate from foreign capital gains.
Example: How you might be taxed on US investment income
Let’s say you make $110,000 per year in Canada – with a marginal tax rate of 38.29%. You earn US$5,000 each in capital gains, interest and dividends from US companies.
Type of investment income
Income (x average US/CAD exchange rate)
Taxable income
Marginal tax rate
Tax
Interest
$5,000 x $1.25
100% of $6,250
(=$6,250)
38.29%
$2,393
Dividends
$5,000 x $1.25
100% of $6,250
(=$6,250)
Amount is not eligible for dividend tax credit
38.29%
$2,393
Capital gains
$5,000 x 1.25
50% of $6,250
(=$3,125)
38.29%
$1,197
Example total tax = $4,596
As you can see, you’ll pay more taxes for foreign investments that pay out dividends since you won’t be eligible for a Canadian tax credit to offset your taxes.
Do I need to pay taxes on capital losses?
Capital losses occur when your investments lose money over time. For example, if a company’s stocks are $200 each when you buy them and $100 each when you sell them, you’ll incur a capital loss for the amount of the difference ($100 in this case).
These losses aren’t taxed and you can use them to offset your capital gains tax in Canada. There are 3 main ways you can strategically do this:
Claim your losses in the current year to reduce your capital gains in part or to zero (you must do this if you have any capital gains in the current year).
Carry forward unused capital loss amounts to future years to offset future gains.
Backdate unused capital loss amounts to amend the capital gains tax in Canada you had to pay in the previous 3 years.
How do I pay tax on robo-advisor and micro-investment apps?
You pay taxes on robo-advisor and micro-investment apps the same way you would with any other platform. The app you use should provide you with tax documents to help you fill out your tax return and claim your investment income.
These documents will typically highlight how much you made, what type of investment income you earned and which lines you need to fill out to claim your tax on stock gains in Canada.
What fees or expenses related to stock trading are tax deductible?
You may be able to claim eligible brokerage and investment fees for non-registered accounts. You can’t claim any tax deductions for fees that you pay for registered accounts (such as RESPs, RRSPs and TFSAs).
Eligible expenses that you can claim for registered accounts include:
Account management fees
Fees for obtaining specific investment advice
Eligible interest costs when you borrow money to invest
Fees for someone to complete your tax return
You may be able to claim additional business-related expenses if you trade stocks as your primary source of income.
How can I reduce the investment income that I have to claim on my taxes?
Use the following strategies to reduce the amount of tax on stock gains in Canada you need to pay.
Use tax advantaged accounts. Hold your investments in a tax-free account such as an RRSP or TFSA to reduce the amount you pay for taxes on stocks in Canada.
Engage in tax-loss harvesting. Sell your investment off to trigger a capital loss so that you can use this to offset losses in previous, current or future years.
Donate assets to charity. Transfer the ownership of stocks to a registered charity to rebalance your portfolio without triggering a capital gain.
Take advantage of taxation laws. Buy dividend-paying stocks in Canada to avoid losing out on tax credits and put higher-taxed investments into registered accounts.
Claim your deductibles. Claim fees and other expenses that you pay to set up an account, manage your investments and access expert advice.
What if I fail to report my stock trading income?
If you repeatedly fail to report $500 or more of your income to the CRA, you may have to pay a penalty of 10% on the unreported amount. This applies to individuals, businesses, corporations and trusts. A “repeated failure” means a failure to report all your income more than once in a 4-year period.
If you haven’t reported all your income to the CRA – whether intentionally or by accident – you may be able to avoid paying penalties and fees by reporting through the CRA’s Voluntary Disclosure Program. Learn more here.
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Bottom line
You have to pay different taxes on stocks in Canada depending on what type of investment income you earn (interest, dividends or capital gains).
You’ll also pay different amounts based on your tax bracket, what type of investor you are (traditional or day trader) and whether you’re purchasing domestic or international stocks.
Yes, you need to report all forms of investment income when you file your taxes. You’ll have to pay tax on stock gains in Canada for income you make through interest, dividends and capital gains.
The amount of taxes you pay will depend on a number of factors such as what type of income you make, what type of investor you are and what tax bracket you’re in.
No, for the most part you won’t need to pay taxes on any stocks you hold in registered accounts. This means you should aim to hold stocks that pay out interest and dividends in these accounts since these stocks usually come with higher tax rates than stocks that pay out capital gains.
The CRA will typically look at the number of trades you carry out each day to determine if you’re a typical investor or a trader. If you carry out high volume trades every day like clockwork, you will likely be taxed as a trader.
This means you’ll have to pay 100% capital gains tax (instead of the 50% charged to typical investors) which can drive up the costs of investing substantially.
You’ll usually get a statement of your investments from your broker or robo-adviser. Common tax forms include a T3 and a T5. You’ll report different types of investments on different lines of your tax return.
For example, you’ll report dividends on line 12000, capital gains on line 12700 and interest and foreign investment income on line 12100.
Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.
Claire Horwood is a writer at Finder, specializing in credit cards, loans and other financial products. She has a Bachelor of Arts in Gender Studies from the University of Victoria, and an Associate’s Degree in Science from Camosun College. Much of Claire’s coursework has focused on writing and statistics, with a healthy dose of social and cultural analysis mixed in for good measure. In her spare time, Claire enjoys rock climbing, travelling and drinking inordinate amounts of coffee.
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