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# What qualifies as interest income?

Interest income stands for interest received on investments in bank accounts, term deposits, GICs (guaranteed investment certificates), Canada savings bonds, T-bills (Treasury bills), and other such investments.

## Interest in Detail

Interest is treated as regular income when it comes to taxation, and it is not eligible for any special treatment or credits. Income received is added to your taxable income, and it is taxed at the marginal tax rate. For example, your income is \$40,000, and you received \$5,000 as interest. If you fall under the marginal tax rate of 21%, the entire income of \$45,000 will be taxed at the rate of 21%.

## Reporting of Interest

Interest income should be reported on an annual basis even if you have not received the amount. For instance, for some investments like term deposits, GICs (guaranteed investment certificates), Canadian Saving Bonds with compound interest, etc., typically you do not receive any interest until surrender or maturity. Let's say you've purchased a "C" bond with a face value of \$2000 at an annual rate of 1%. This interest of 1% will get added to your bond value every year, but you won't receive any actual money until expiry of the 10-year period or until you surrender the bond. However, you'll have to include the interest of \$20 (\$2000x1%) every year in your income for calculation of tax.

## Interest from banks

In the case of interest received from banks, this income should be reported even if you are yet to receive an information slip. In the case of a joint bank account, you should calculate the interest component on the basis of your contribution to the account. For example, you have a joint account, and both you and your partner have earned interest of \$600 at the rate of 3%. If you contributed \$10,000 to this account during the financial year, you would need to include \$300 as your interest income.

## Interest on T-Bills

In the case of T-bills, the amount gained upon maturity, i.e. the difference between the purchase price and the disposition price, should be reported as interest income. However, in case T-bills are surrendered prior to maturity, and there is an increase over the original purchase price, you need to report this profit as capital gain.

## Foreign Interest

In case you receive foreign interest, this also should be reported as regular income. This amount in foreign currency should be converted to Canadian dollars. This conversion is done at the Bank of Canada exchange rate for the day on which you received the interest. If you have received this interest at different times of the year, you should convert this income to Canadian dollars using the average annual exchange rate. And If you have done any foreign tax payments on this interest, you may be eligible for some foreign tax credit while calculating federal and provincial tax. However, you need to report the actual interest income and not the amount after deducting foreign taxes.

## How does interest income affect your tax?

Interest is taken as part of your total income. You can calculate the tax implications of interest income on the tax calculator (select advanced tax calculator options for Interest).

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