Investing outside a registered account can create several types of taxable income. Interest, Canadian dividends, foreign income, fund distributions and capital gains are not all reported in the same way.
Tax software and the CRA’s Auto-fill My Return service can make the process easier, but they do not remove your responsibility to report everything correctly. A missing tax slip, an inaccurate adjusted cost base or an unreported foreign asset can still create problems.
This guide explains how to report investment income in Canada, which documents you may receive and which records you need to maintain yourself.
Start With the Type of Account
Before looking at individual transactions, identify the account that held the investment.
Registered accounts
Investment income earned inside a TFSA is generally not reported on your annual tax return. Interest, dividends and capital gains can normally grow tax-free inside the account.
Income and gains earned inside an RRSP are also generally not reported while they remain in the plan. RRSP withdrawals are taxable and are reported separately using the tax slip issued by the financial institution.
Other registered plans, including RRIFs, FHSAs and RESPs, have their own withdrawal and reporting rules. The tax treatment depends on the account and the type of withdrawal.
You can learn more in these guides:
- How to Use a TFSA to Build Wealth Tax-Free
- How to Maximize Your RRSP Contributions
- FHSA Explained: Saving for Your First Home
- RESPs Explained: Saving for Your Child’s Education
Non-registered accounts
Interest, dividends, foreign income and realized capital gains earned in a non-registered account may have to be reported on your tax return.
This is where investment tax reporting becomes more involved. Your tax slips provide much of the required information, but they may not contain everything you need.
Common Investment Tax Slips
Depending on your investments, you may receive one or more of the following slips:
- T5: Interest, Canadian dividends, foreign income and certain other investment income
- T3: Income and distributions from trusts, mutual funds and many Canadian-listed ETFs
- T5013: Income allocated by a partnership
- T5008: Securities sold or redeemed during the year
You may also receive an investment income summary, a realized gain and loss report or an annual trading statement from your financial institution.
These documents are useful, but they should be compared with your own records. A T5008, for example, may show the proceeds from a sale without providing a reliable adjusted cost base.
Tax slips can also arrive at different times. T3 slips are often issued later than T5 slips, so filing too early can increase the chance of missing information.
How to Report Interest Income
Interest from savings accounts, guaranteed investment certificates, bonds and similar investments is generally reported on line 12100 of the federal tax return.
This income may appear in box 13 of a T5 slip or on a T3 or T5013 slip.
You must report taxable interest even when you do not receive a T5. A financial institution may not issue a T5 when the amount is less than $50, but that does not make the income tax-free.
For multi-year GICs, interest may have to be reported annually as it is earned, even if the money will not be paid until maturity. The financial institution will usually provide the required amount.
If an investment account is jointly owned, each person generally reports the portion of the income that corresponds to the amount they contributed. Simply dividing the income equally may not be correct when the owners contributed different amounts.
How to Report Canadian Dividends
Dividends from taxable Canadian corporations receive different tax treatment from ordinary interest income.
Canadian dividends are generally classified as:
- Eligible dividends
- Other-than-eligible dividends
Your tax slip shows the actual dividend, its taxable amount and the corresponding dividend tax credit. Tax software normally transfers these figures to the appropriate lines of the return.
The total taxable amount of Canadian dividends is generally reported on line 12000. The portion consisting of other-than-eligible dividends is also identified on line 12010. The federal dividend tax credit is claimed separately.
The taxable amount shown on the slip can be higher than the cash dividend you received. This is caused by the dividend gross-up and tax-credit system. Enter the information from the tax slip rather than replacing it with the amount deposited into your account.
How to Report Foreign Investment Income
Interest and dividends from foreign investments are generally reported on line 12100.
Foreign amounts must be converted to Canadian dollars. Depending on the circumstances, you may use the Bank of Canada exchange rate for the date of the transaction or an acceptable annual average rate for amounts received throughout the year.
Foreign dividends do not qualify for the Canadian dividend tax credit. If foreign tax was withheld before the income reached your account, you may be able to claim a foreign tax credit.
Report the gross foreign income and the foreign tax paid in their appropriate fields. Do not report only the smaller amount deposited after withholding tax.
Holding a foreign company through a Canadian-listed ETF does not automatically mean that you personally own foreign property for reporting purposes. However, directly held foreign shares or foreign-listed ETFs in a non-registered account may create additional reporting obligations.
When Form T1135 May Be Required
Canadian residents may have to file Form T1135 when the total cost amount of all their specified foreign property exceeded C$100,000 at any time during the year.
Cost amount is not the property’s current market value. The CRA explains that it is generally the property’s adjusted cost base.
For directly owned foreign shares and foreign-listed ETFs, this generally means their combined adjusted cost base in Canadian dollars. For example, foreign securities with a combined ACB of C$110,000 could trigger the filing requirement even if their market value later fell below C$100,000.
The test applies to the combined cost amount of all specified foreign property. A taxpayer could therefore exceed the threshold by holding:
- Foreign shares with an ACB of C$70,000
- A foreign-listed ETF with an ACB of C$20,000
- C$15,000 in a foreign bank account
Together, these properties have a total cost amount of C$105,000, even though none exceeds C$100,000 individually.
Specified foreign property can include directly owned foreign shares, foreign-listed ETFs, foreign bank accounts and certain other assets. Property held inside registered plans such as TFSAs and RRSPs is generally excluded from Form T1135 reporting.
Canadian mutual funds and Canadian-listed ETFs are also generally treated as Canadian property, even when the fund itself invests internationally.
Form T1135 is an information return. Filing it does not replace the requirement to report income generated by the foreign property on your tax return. Foreign income must still be reported even when the total cost amount remains below C$100,000 and no T1135 is required.
Because the definition of cost amount and the foreign-property rules can vary by asset type, consider consulting the CRA’s current instructions or a qualified tax professional if your holdings are close to or above the threshold.
How to Report Capital Gains and Losses
A capital gain or loss normally occurs when you sell, redeem or otherwise dispose of an investment in a non-registered account.
The basic calculation is:
Capital gain or loss = proceeds of disposition − adjusted cost base − selling expenses
Suppose you sell an ETF for $12,000. Its adjusted cost base is $9,500, and you pay a $10 commission to sell it.
Your capital gain would be:
$12,000 − $9,500 − $10 = $2,490
The disposition is reported on Schedule 3, and the resulting taxable capital gain flows to line 12700. Tax software applies the rules in effect for the applicable tax year.
If the calculation produces a capital loss, that loss can generally be used against capital gains rather than against employment or interest income. Net capital losses may also be available for use in other years, subject to the applicable rules.
Understanding Adjusted Cost Base
The adjusted cost base, or ACB, is generally the amount you have invested in a security for tax purposes. It is used to calculate your capital gain or loss when you sell an investment in a non-registered account.
The ACB is not simply the investment’s current value or the price of your most recent purchase. When you buy additional units of the same investment, you generally calculate a new average cost per unit.
Suppose you buy 100 ETF units for $20 each and pay a $10 commission.
Your total adjusted cost base is:
$2,000 + $10 = $2,010
Your average cost per unit is:
$2,010 ÷ 100 = $20.10
Later, you buy another 50 units for $24 each and pay another $10 commission. You now own 150 units with a combined adjusted cost base of:
$2,010 + $1,200 + $10 = $3,220
Your new average cost per unit is:
$3,220 ÷ 150 = approximately $21.47
If you later sell some of the units, that average cost is used to determine the adjusted cost base of the units sold.
Your ACB may also change because of:
- Additional purchases of the same investment
- Purchase commissions
- Reinvested distributions
- Return-of-capital distributions
- Corporate reorganizations or share splits
- Transfers between financial institutions
Identical investments held in your different non-registered accounts generally form part of the same average-cost calculation. Transferring an investment from one brokerage to another does not reset its adjusted cost base.
For investments purchased in a foreign currency, the purchase cost and transaction expenses must generally be converted to Canadian dollars. This means the Canadian-dollar ACB may differ from the figure displayed by a brokerage using current exchange rates.
Why Your T5008 May Not Be Enough
A T5008 can help identify securities you sold, but its cost information may be missing or incomplete. The amount shown as book value by your brokerage is not automatically your correct adjusted cost base.
A brokerage may not have complete information about investments transferred from another institution, older transactions or identical securities held in another non-registered account. It may also handle reinvested distributions or return of capital differently from your own records.
You are responsible for maintaining and verifying the adjusted cost base used on your tax return. Keep purchase confirmations, account statements, distribution details and transfer records for as long as they may be needed to support the calculation.
Your calculation may need to include:
- The original purchase price
- Purchase commissions
- Additional purchases of the same investment
- Reinvested distributions
- Return-of-capital distributions
- Corporate reorganizations or share splits
- Transactions involving identical investments held at another brokerage
When you make several purchases of the same security, you generally use an average cost rather than choosing a specific group of shares to sell.
Keeping accurate records throughout the year is much easier than reconstructing years of transactions after selling an investment.
ETF and Mutual Fund Distributions
An ETF distribution is not always a dividend.
A fund distribution can include:
- Interest
- Canadian dividends
- Foreign income
- Capital gains
- Return of capital
- A combination of several income types
The T3 or T5 slip identifies how the distribution should be reported. The amount deposited into your account does not tell you its tax character.
Reinvested distributions
A distribution can be taxable even when you do not receive cash.
Some funds reinvest a distribution by purchasing additional units or by increasing the value of the units you already own. The taxable income appears on your tax slip, and the reinvested amount generally increases your adjusted cost base.
If you report the distribution but fail to increase your adjusted cost base, you could pay tax on the same economic gain again when you eventually sell.
Return of capital
Return of capital is generally not taxed as income when received. Instead, it reduces the adjusted cost base of your investment.
If you receive $100 of return of capital, your adjusted cost base generally falls by $100. This can increase the capital gain you realize when you later sell the investment.
If return-of-capital distributions reduce the adjusted cost base below zero, the negative amount may create an immediate capital gain.
This is one reason a simple portfolio can make tax reporting easier. Owning fewer funds means fewer distributions and adjusted-cost-base changes to track. If you are considering a simpler structure, read All-in-One ETFs in Canada.
Investment Expenses and Carrying Charges
Certain costs associated with earning taxable investment income may be deductible on line 22100.
Potentially deductible costs can include:
- Qualifying fees for managing non-registered investments
- Certain fees for investment advice
- Interest paid on money borrowed to earn income from a business or property
The rules depend on what the money was borrowed for and whether the investment had a reasonable expectation of producing income.
Fees related to registered accounts are generally not deductible on line 22100. Trading commissions are also handled differently: purchase commissions are generally added to the adjusted cost base, while selling commissions reduce the proceeds of disposition.
Keep receipts and statements supporting any deduction you claim.
A Practical Example
Imagine that you earned the following amounts in a non-registered account during the year:
- $300 of savings-account interest
- Canadian eligible dividends reported on a T5
- $250 of foreign income from an ETF
- A $150 capital-gains distribution from the same ETF
- A $100 return-of-capital distribution
- A $2,490 capital gain from selling part of the ETF position
These amounts are not combined and reported as a single total.
The interest and foreign income are generally reported as investment income. The Canadian dividends follow the dividend reporting system shown on the T5. The fund’s capital-gains distribution is reported using the information on the tax slip.
The $100 return of capital generally reduces the ETF’s adjusted cost base. The separate $2,490 gain from selling units is calculated using the proceeds, adjusted cost base and selling expenses, then reported on Schedule 3.
One ETF can therefore generate several different tax items during the same year.
Common Investment-Income Reporting Mistakes
Assuming Auto-fill My Return contains everything
Auto-fill can save time, but tax slips may be late, amended or missing. You remain responsible for checking the information.
Using the cash dividend instead of the taxable amount
For Canadian dividends, enter the amounts from the tax slip. The cash received and taxable amount can be different.
Trusting the T5008 cost figure without verification
The brokerage may not know about transfers, transactions at another institution or older purchases. Maintain your own adjusted-cost-base records.
Ignoring reinvested distributions
A reinvested distribution can be taxable even though no cash appeared in your account. It can also change your adjusted cost base.
Treating return of capital as ordinary income
Return of capital generally reduces the adjusted cost base instead of being reported as regular income.
Reporting only foreign income received after withholding tax
Report the gross income and record the foreign tax paid separately.
Assuming registered-account activity belongs on the annual return
Buying and selling inside a TFSA or RRSP does not normally create annual taxable investment income. Withdrawals and overcontributions are separate matters with their own rules.
Investment Tax Checklist
Before filing your return:
- Identify which investments were held in registered and non-registered accounts.
- Gather all T3, T5, T5013 and T5008 slips.
- Compare the slips with your account statements.
- Report taxable interest even if no T5 was issued.
- Enter Canadian dividends using the amounts shown on the slip.
- Convert foreign income and foreign taxes to Canadian dollars.
- Calculate capital gains using your own adjusted-cost-base records.
- Account for reinvested distributions and return of capital.
- Determine whether Form T1135 is required.
- Keep supporting records for your income, expenses and adjusted-cost-base calculations.
Good Records Make Tax Season Simpler
The most difficult part of investment tax reporting is often not entering information into tax software. It is keeping accurate records before you need them.
Reviewing your non-registered accounts once or twice a year can help you catch missing transactions, update adjusted cost bases and save the documents needed at tax time.
A clear recordkeeping system also makes it easier to understand what your investments are actually earning after fees and taxes.
Frequently Asked Questions
Do I have to report interest if I did not receive a T5?
Yes. Taxable interest must generally be reported even when it is less than $50 and no T5 was issued.
Do I report trades made inside my TFSA or RRSP?
Ordinary investment purchases, sales, interest, dividends and capital gains inside these registered accounts are generally not reported as annual investment income. Withdrawals and other account activity can have separate tax consequences.
Are Canadian dividends taxed the same as foreign dividends?
No. Taxable dividends from Canadian corporations may qualify for the dividend tax credit. Foreign dividends do not qualify for that credit.
Do I need Form T1135 for U.S. stocks?
Possibly. Directly owned foreign securities held in a non-registered account can be specified foreign property. The form may be required if the total cost amount of all specified foreign property exceeded C$100,000 at any point during the year.
Does a capital-gains distribution mean I sold my ETF?
No. A fund can realize gains inside the portfolio and distribute them to investors even when you did not sell any units. That distribution is separate from any capital gain or loss you realize when selling your own units.
Sources
- Canada Revenue Agency: Investment income
- Canada Revenue Agency: Interest and other investment income
- Canada Revenue Agency: Taxable Canadian dividends
- Canada Revenue Agency: Tax treatment of mutual funds and ETFs
- Canada Revenue Agency: Foreign Income Verification Statement
- Canada Revenue Agency: Carrying charges and interest expenses
This article provides general educational information and does not constitute tax, legal or financial advice. Tax rules depend on your circumstances and can change. Consult the CRA’s current guidance or a qualified tax professional when necessary.