You’ll need to pay taxes when you earn dividends, interest and/or capital gains from stocks held in taxable (non-registered) accounts. But different types of investment income affect your tax rate, and the taxes on stock gains you’ll pay will depend on what type of investor you are and what income bracket you’re in.
Keep reading to find out how stocks are taxed in Canada.
Yes, you’ll need to pay taxes on stocks in Canada that generate investment income in a non-registered account. But the way stocks are taxed in Canada varies depending on three main factors:
Yes, you’ll need to pay tax on your day trading income in Canada. Unlike regular investors, the income you earn from day trading is fully taxable as business income.
You won’t need to pay taxes on investment income you earn in a TFSA. Other tax-advantaged registered accounts such as RESPs and RRSPs allow you to defer tax until you make a withdrawal from your account. However, be aware that you might have to pay taxes on your investments if you use these accounts for day trading or to generate business income.
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 earn on investments such as savings accounts, government or corporate bonds, GICs, mutual funds and ETFs. | 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. You can earn dividends from stocks, ETFs and mutual funds. | 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. |
| Capital gains | You’ll pay capital gains tax in Canada on the difference when you buy a stock or ETF 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, whose profits are fully taxable as business income. | If you buy a stock for $1,000 and sell it for $2,000, you’ll pay 50% capital gains tax on the profit you make (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). |
The type of investor you are will influence how you are taxed.
If, like most investors, you buy and hold stocks for the long-term, you will usually need to declare your investment income as capital gains or losses. But if you’re a day trader, your profits will be taxed as business income.
There’s no clear-cut definition of what makes you a day trader instead of an investor. Rather, the CRA will consider a number of different factors, such as:
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.
Check the current federal and provincial or territorial income tax rates to work out your marginal tax rate.
Let’s say you have a marginal tax rate of 37% based on your income and your mum has a marginal tax rate of 20%. If you both make $20,000 in investment income for the current financial year, 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 mum |
|---|---|---|
| Interest | $7,400 | $4,000 |
| Dividends | Varies – but higher for you | Varies – but lower for parents |
| Capital gains | $3,700 | $2,000 |
As you can see, your mum will pay less tax than you on all investment types given their lower annual income and tax bracket.
The way dividends are taxed depends on factors such as:
There are two types of dividends paid by Canadian stocks:
You’ll need to be a Canadian resident and to have held the stock for a minimum period to be eligible for the tax credit. However, the federal dividend tax credit cannot be applied to foreign stock dividends.
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.
Bob makes $110,000 per year in BC, with a marginal tax rate of 31%. 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) | 31% | $1,550 |
| Dividends | $5,000 (eligible dividend grossed-up to $6,900) | Step 1. $6,900 x 0.31 marginal tax rate (=$2,139) Step 2. $6,900 x 15% federal tax dividend credit rate (=$1,035) You pay tax on $2,139 – $1,035 | 31% | $1,104 |
| Capital gains | $5,000 | 50% of $5,000 (=$2,500) | 31% | $775 |
Example 1 total tax = $3,429
Rick makes $110,000 per year in Canada with a marginal tax rate of 31%. He needs to claim $5,000 in each type of investment income on his taxes, and he is classified as a trader so it will be taxed as business income.
| Type of investment income | Income | Taxation income | Marginal tax rate | Tax |
|---|---|---|---|---|
| Interest | $5,000 | 100% of $5,000 (=$5,000) | 31% | $1,550 |
| Dividends | $5,000 (eligible dividend grossed-up to $6,900) | Step 1. $6,900 x 0.31 marginal tax rate (=$2,139) Step 2. $6,900 x 15% federal tax dividend credit rate (=$1,035) You pay tax on $2,139 – $1,035 | 31% | $1,104 |
| Capital gains | $5,000 | 100% of $5,000 (=$5,000) | 31% | $1,550 |
Example 2 total tax = $4,204
As you can see, traders are taxed more than investors since they pay 100% for capital gains tax in Canada (instead of 50%).
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. You can do this by using the exchange rate on the date of the transaction.
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:
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 USD/CAD exchange rate) | Taxable income | Marginal tax rate | Tax |
|---|---|---|---|---|
| Interest | $5,000 x $1.35 | 100% of $6,750 (=$6,750) | 38.29% | $2,585 |
| Dividends | $5,000 x $1.35 | 100% of $6,750 (=$6,750) Amount is not eligible for dividend tax credit | 38.29% | $2,585 |
| Capital gains | $5,000 x 1.35 | 50% of $6,750 (=$3,375) | 38.29% | $1,292 |
Example total tax = $6,462
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.
Capital losses occur when your investments lose money. For example, if a company’s stock is worth $200 when you buy and $100 when you sell, you’ll incur a capital loss of $100.
These losses aren’t taxed and you can use them to offset your capital gains tax in Canada. There are three main ways you can strategically do this:
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.
Fees you pay to earn income from investments are known as carrying charges. If you’re investing through a non-registered account, you can claim the following carrying charges on your tax return:
You may also be able to claim additional business-related expenses if you trade stocks as your primary source of income.
However, you can’t claim things like trading commissions, transaction fees and general financial planning fees as deductions. You also can’t claim carrying fees for registered accounts (such as RESPs, RRSPs and TFSAs).
Related: Cryptocurrency tax guide
Use the following strategies to reduce the amount of tax on stock gains in Canada you need to pay.
If you repeatedly fail to report $500 or more of your income to the CRA, you may have to pay a penalty. The penalty is whichever is less from the following:
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 Disclosures Program. Learn more here.
Make sure you’re not paying more than you need to on your stock trading platform by comparing stock trading apps and trading platforms in Canada below.
To make comparing even easier we came up with the Finder Score. Trading costs, account fees and features across 10+ stock trading platforms and apps are all weighted and scaled to produce a score out of 10. The higher the score, the better the platform—it's that simple.
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.
If you need help understanding how much tax you need to pay on your investment income, speak to a tax professional.
Dive deeper: Online stock trading
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