Investment income can be a valuable part of your financial portfolio, offering the potential for passive earnings and long-term growth. However, it also comes with tax obligations. In Canada, investment income must be accurately reported on your personal tax return to remain compliant with the Canada Revenue Agency (CRA). This comprehensive guide walks you through how to report various types of investment income on your T1 return.
1. What Qualifies as Investment Income?
Investment income encompasses any income earned from assets such as stocks, bonds, mutual funds, savings accounts, and rental properties. The main categories include:
- Interest income
- Dividends (eligible and non-eligible)
- Capital gains
- Foreign investment income
- Income from real estate investments
2. Reporting Interest Income (T5 Slip)
Interest income includes earnings from savings accounts, GICs, bonds, and term deposits. If you earn more than $50 in interest from a single institution, you will receive a T5 – Statement of Investment Income. This form shows your total interest income in Box 13.
Report the interest on line 12100 of your tax return. Even if you do not receive a T5 slip, you are still required to report the full amount of interest earned.
3. Reporting Dividend Income
Dividends are payments made by corporations to their shareholders. In Canada, they are categorized as:
- Eligible Dividends: Paid by large public companies and benefit from the dividend tax credit.
- Non-eligible Dividends: Paid by small businesses or private corporations and receive a smaller credit.
You’ll report dividends using the amounts from your T5 or T3 slips, which include the actual dividend and gross-up amount. Use the following lines:
- Line 12000 – Taxable amount of dividends (eligible and other than eligible)
- Line 40425 – Federal dividend tax credit
4. Reporting Capital Gains and Losses
Capital gains arise when you sell an investment for more than you paid. Conversely, capital losses occur when the selling price is lower than the purchase price. Only 50% of capital gains are taxable in Canada.
To report capital gains:
- Use Schedule 3 – Capital Gains (or Losses)
- Include net gains on line 12700 of your return
You may carry forward unused capital losses to future years or apply them to past capital gains (up to 3 years back).
5. Reporting Foreign Investment Income
If you earn investment income from foreign sources (e.g., U.S. dividends, overseas mutual funds), report it in Canadian dollars and include:
- Gross income
- Foreign taxes paid (Box 34 of T5 or on T3)
Report foreign investment income on:
- Line 12100 – Interest and other income
- Line 24400 – Foreign tax credit (Form T2209)
6. Real Estate Investment Income
Income from rental properties is also investment income. Use Form T776 – Statement of Real Estate Rentals to report gross rental income, expenses, and net income.
Net rental income is entered on line 12600 of your return. If you share ownership, report only your portion.
7. Reporting Mutual Fund Income
Mutual funds may provide income in the form of interest, dividends, or capital gains. These are reported on T3 or T5 slips:
- Use line 12000 for dividends
- Line 12100 for interest income
- Line 12700 for capital gains
Ensure you also include reinvested distributions even if no cash was received.
8. Using the T5008 Slip: Securities Transactions
The T5008 – Statement of Securities Transactions lists proceeds from selling securities (e.g., stocks). While this slip provides the amount you received upon sale, it may not list your adjusted cost base (ACB). You must calculate your capital gain or loss using:
- Proceeds of disposition
- Adjusted cost base (ACB)
- Expenses incurred to sell
Use Schedule 3 and report results on line 12700.
9. Filing Requirements for Foreign Assets Over $100,000
If you held specified foreign property with a cost of more than CAD $100,000 at any point during the year, you must file Form T1135 – Foreign Income Verification Statement.
Failure to file this form on time may lead to significant penalties—even if no income was earned.
10. Tax-Sheltered Investment Income
Investment income earned in tax-advantaged accounts like TFSA (Tax-Free Savings Account) or RRSP (Registered Retirement Savings Plan) is not reportable on your return, unless withdrawn:
- TFSA: Withdrawals are tax-free
- RRSP: Withdrawals are taxable (reported on a T4RSP slip)
11. Deductions Related to Investment Income
You may be able to deduct certain expenses incurred to earn investment income, such as:
- Interest paid on money borrowed to earn investment income (not capital gains)
- Accounting fees for investment-related tax reporting
- Fees for investment counsel (but not brokerage commissions)
Claim eligible deductions on line 22100 – Carrying Charges and Interest Expenses.
12. Tips for Accurate Reporting
- Cross-check all slips (T3, T5, T5008, etc.) for consistency
- Use tax software that automatically imports CRA slips via Auto-fill
- Keep records of purchase/sale transactions, ACBs, and reinvested distributions
- Be cautious of double-reporting if using both T5 and T5008 slips
13. Penalties for Underreporting
Failing to report investment income can lead to:
- Late filing penalties
- Interest on unpaid tax
- Repeated failure to report income penalty (20% on unreported amount)
It’s better to report and pay than to risk a CRA audit or reassessment.
14. Conclusion
Reporting investment income on your personal tax return is a critical part of tax compliance. With multiple forms and income types, it can get complex, especially if you have foreign holdings or capital transactions. Knowing what to report, where to report it, and which deductions to claim ensures that you remain compliant with CRA rules while minimizing your tax liability.
When in doubt, consult a qualified tax advisor or use CRA-certified tax software to streamline the process and maximize accuracy.
