Different financial assets provide different types of income, and each one has specific tax consequences.
Interest Income
Interest is the cost of borrowing money, so when investors get revenue from lending out their money (for example, to purchase a bond) they earn interest income – which is fully taxable in Canada if held outside a tax-sheltered plan.
Dividend Payments
Dividend payments are how a company pays its shareholders for holding its stock. Any such gains need to be reported as income, and will be taxed at different levels depending on how they are set up.
Capital gains occur when investors sell an investment for more than they paid for it. They have the most favourable taxes of any type of investment income – in Canada, investors only have to include half of their total capital gains in their taxable income, which is then taxed at their individual marginal tax rate.
