There is no single T5 tax rate in Canada. Investment income reported on a T5 slip is added to your other income for the year and taxed at your marginal federal and provincial rates, which at the federal level alone range from 14% to 33% in 2026 before any province adds its share. What you actually pay on a given T5 amount depends on three things: how much other income you earn, what kind of investment income is in the box, and where you live. Interest is taxed hardest, Canadian dividends get a built-in credit, and foreign income can be offset by tax already paid abroad.
How T5 Income Sits On Top of Your Other Income
Every dollar on your T5 stacks onto your salary, pension, and any other reported income. The combined total decides which federal bracket each slice falls into. For 2026, the federal brackets are:
- 14% on the first $58,523 of taxable income
- 20.5% from $58,523 to $117,045
- 26% from $117,045 to $181,440
- 29% from $181,440 to $258,482
- 33% above $258,482
Provincial brackets layer on top, and in some provinces the combined marginal rate on the top slice exceeds 50%. Someone earning $50,000 in salary with $3,000 in T5 interest pays the 14% federal rate on that interest. Someone earning $200,000 pays 29% federal on the same $3,000. The slip itself doesn’t change anything; your overall income does.1Canada Revenue Agency. Tax Rates and Income Brackets for Individuals
Interest Is Taxed in Full
Interest reported in Box 13 is included in your taxable income at 100%, with no credit or preferential rate. That covers savings accounts, GICs, term deposits, and bonds. Each dollar of interest is taxed the same as a dollar of employment income, which makes it the least tax-efficient form of investment return.2Canada Revenue Agency. T5 Statement of Investment Income – Slip Information for Individuals
If you hold a multi-year GIC or a compound-interest investment, you have to report the accrued interest each year rather than waiting for maturity. The CRA requires individuals to recognize interest on an accrual basis, even when no cash has actually been paid out yet.3Canada Revenue Agency. Line 12100 – Interest and Other Investment Income
Canadian Dividends: Gross-Up and Tax Credit
Dividends from Canadian corporations are taxed differently because the company has already paid corporate tax on the profits. The system inflates your reported dividend income and then hands back a credit against that inflation.
Step one is the gross-up. For eligible dividends, typically paid by large public corporations, the gross-up is 38%, so a $1,000 dividend becomes $1,380 of taxable income. For non-eligible dividends, usually from small businesses taxed at lower corporate rates, the gross-up is 15%, turning $1,000 into $1,150.4Justice Laws Website. Income Tax Act – Taxable Dividends Received
Step two is the federal dividend tax credit. For eligible dividends the credit is roughly 15.02% of the grossed-up amount; for non-eligible dividends it is about 9.03%. Most provinces add their own dividend tax credit on top.5Department of Finance Canada. Notice of Ways and Means Motion to Amend the Income Tax Act
The result at lower incomes: the gross-up and credit combined can make eligible dividends nearly tax-free. At higher incomes, the credit no longer fully offsets the gross-up and real tax is owed. Non-eligible dividends carry a heavier effective rate than eligible ones because the smaller credit mirrors the lower corporate tax already paid. You report the taxable dividend amount from Box 25 on Line 12000.6Canada Revenue Agency. Line 12000 and 12010 – Taxable Amount of Dividends From Taxable Canadian Corporations
Foreign Investment Income
Box 15 reports foreign investment income and Box 16 shows any foreign tax withheld before you received the money. The foreign amount is converted to Canadian dollars and included in your taxable income at full value, the same as domestic interest.
The offset is the federal foreign tax credit on Line 40500. If another country’s government withheld tax on that income, you can claim a credit to avoid being taxed twice on the same money. The credit reduces your Canadian tax by the amount of foreign tax paid, up to a ceiling based on the Canadian tax that would otherwise apply to that income.2Canada Revenue Agency. T5 Statement of Investment Income – Slip Information for Individuals
Investments Inside Registered Accounts
Income earned inside a TFSA, RRSP, or RESP does not generate a T5 and is not included in your taxable income while it stays in the account. A T5 covers investment income only in non-registered, taxable accounts. Five thousand dollars of interest inside a TFSA owes nothing; the same $5,000 in a regular savings account is fully taxable at your marginal rate.
Withdrawals from RRSPs and RRIFs are taxable, but they arrive on a T4RSP or T4RIF, not a T5. The T5 is strictly for investment income earned outside the registered system.7Canada Revenue Agency. T5 Slip
How T5 Income Affects OAS and GIS
The real cost of T5 income is sometimes bigger than the marginal tax on it, because that income also counts toward the net-income thresholds behind federal benefits. Retirees feel this most.
Old Age Security is subject to a recovery tax, commonly called the OAS clawback, once your net income exceeds an annually indexed threshold. For the 2024 tax year that threshold was $90,997, with a clawback of 15 cents on every dollar above it.8Canada Revenue Agency. Old Age Security Payment Amounts A large T5 amount from a maturing GIC or a lump-sum interest payment can push a retiree across that line without warning. For the 2026 tax year, the threshold is estimated at roughly $95,000 after indexation, with the exact figure confirmed annually by the CRA.
The Guaranteed Income Supplement is more sensitive still. GIS benefits are reduced by 50 cents for every dollar of most income types, T5 interest and dividends included. Because the reduction rate is so steep, a modest amount of investment income can wipe out a significant portion of GIS. For low-income retirees, income tax and GIS reduction combined can push the effective marginal rate on T5 income well above 50%.
What Happens If You Miss a T5 on Your Return
Leaving a T5 amount off your return can trigger a federal penalty if you’ve done it before. The CRA applies a repeated failure-to-report penalty when you omit income in the current year and also failed to report income in any of the three preceding tax years. The penalty is 10% of the unreported amount, and it applies to individuals, not just businesses.9Canada Revenue Agency. Avoiding Penalties
If you realize you missed T5 income from a prior year, the Voluntary Disclosures Program lets you correct the error and potentially avoid penalties and reduce interest charges. Relief is granted case by case to taxpayers who come forward before the CRA contacts them about the issue.10Canada Revenue Agency. Voluntary Disclosures Program Every T5 your bank files also goes to the CRA’s matching system, so unreported amounts tend to surface eventually. Coming forward first is almost always cheaper.