Everyone has a savings account since we were young. Earning interest from a savings account, even only a few dollars a month, can feel great.
Interest income on a savings account in Canada is generally taxable. Financial Institutions issue a T5 investment income tax slip which contains the interest earned for the year on a savings account. Savings account income has to be filed together when submitting yearly tax returns in Canada.
Deposits and withdrawals from savings accounts in Canada are not taxable. Taxes apply to the amount of interest earned. For the most part, there is no limit on deposits and withdrawals on savings accounts. However, banks may have a daily limit on the amount of deposits and withdrawals.
Savings Account Interest Tax Rates in Canada
Interest on savings accounts in Canada is fully taxable at your marginal tax rate, which is similar to employment income. Marginal tax rates in Canada (combined federally and provincially) range from 20% to 55% in most provinces.
| 2022 Federal Marginal Tax Rate | Total Taxable Income |
| 15% | First $50,197 |
| 20.5% | Portion of taxable income over 50,197 up to $100,392 |
| 26% | Portion of taxable income over $100,392 up to $155,625 |
| 29% | Portion of taxable income over 155,625 up to $221,708 |
| 33% | Over $221,708 |
Provinces in Canada may have a marginal tax rate of between 5% and 20%, depending on the amount of income. Thus, the additional income from interest on a savings account may range from 20% to 55% (combined federally and provincially).
Should you have an income of about $40,000 a year ($20 an hour, 40 hours a week), the income on a savings account will likely be taxed at around 20%, depending on the province you live in.
The average income in Canada was $54,630 (source). In Ontario, the marginal tax rate on income between $50,197 to $81,411 (about $25 to $40 an hour, 40 hours a week) is 29.65% (Source).
Should you earn a total income of around $60,000 in Ontario, the additional income from a savings account will likely be taxed at a marginal tax rate of 29.65%.
Savings Account Taxes on Interest Earned (assume 30% tax rate)
| Interest Earned | Tax (assuming 30%) |
|---|---|
| $10 | $3 |
| $50 | $15 |
| $100 | $30 |
| $200 | $60 |
| $500 | $150 |
| $1,0000 | $300 |
How to File Taxes on a Savings Account
To file the taxes from interest income on a savings account, download or print the T5 tax slip from your savings account online banking. The T5 slip can likely be found in the “Tax Documents” section on one of the main menus of your savings account online banking.
Find the investment income section on the tax software you use, such as Wealthsimple Tax or Turbotax Canada. Enter the details on the T5 tax slip. Income from savings accounts is filed together with employment income and other kinds of income when filing yearly tax returns.
The T5 tax slip will likely be available in late February or early March each year on your savings account online banking. The amount of interest can likely be found in Box 13, “Interest from Canadian sources”. The deadline to file personal tax returns in Canada is usually every April 30.
Savings Accounts in Canada
| Interest Rates | Monthly Fee | Minimum Balance | |
| RBC High Interest eSavings (rbcroyalbank.com) | 0.80% | $0 | $0 |
| Neo Money (neofinancial.com) | 1.80% | $0 | $0 |
| BMO Savings Amplifier (bmo.com) | 1.00% | $0 | $0 |
How can I avoid paying taxes on my savings account?
Regular savings account taxes cannot be avoided. On the other hand, taxes can be avoided through a TFSA (Tax Free Savings Account). Interest income on a TFSA Savings Account is tax free. However, TFSA has its own limits and disadvantages compared to most savings accounts in Canada.
Taxes on the Main Types of Savings Accounts in Canada
1. Taxes on a Regular Savings Account in Canada
Most savings accounts apply to this category. Unless your savings account is a registered savings account such as TFSA or RRSP, interest income will be taxable and should be declared as taxable income when filing taxes during the tax season.
The tax rates on interest income on a regular savings account is your marginal tax rate, which ranges between 20% and 55% depending on your total amount of taxable income and the province where you live.
Advantages
- Cash can be withdrawn tax-free at any time
- Few requirements when opening an account
- Can be opened at a young age
Disadvantages
- Interest earned is taxable
2. TFSA Savings Account Taxes
Interest earned on a TFSA (Tax Free Savings Account) is tax free. However, deposits to TFSA are limited to a TFSA contribution limit, which is around $6,000 per year. Deposits above the contribution to TFSA accounts may be subject to a 1% monthly penalty by the CRA (Canada Revenue Agency).
Your TFSA contribution limit amount can also be found on your CRA account, which is updated every January.
TFSA Contribution Limit
| Year | Contribution Limit |
| 2022 | $6,000 |
| 2021 | $6,000 |
| 2020 | $6,000 |
| 2019 | $6,000 |
| 2018 | $5,500 |
| 2017 | $5,500 |
| … | … |
| 2009 | $5,000 |
- Unused contribution limits for past years do not expire.
- Withdrawals are added to the contribution limit every January 1.
- Multiple TFSA accounts can be opened, but the total deposits should be below the contribution limit.
- The value of investments in a TFSA does not affect the contribution limit.
Advantages
- Interest earned is tax free.
- Other investments can also be invested in a TFSA.
- Withdraw funds from a TFSA savings account tax-free at any time.
Disadvantages
- Deposits are limited up to the TFSA contribution limit.
- Total deposits above the limit are subject to a 1% monthly tax by the CRA.
- You must be at least 18 or 19 years old (age of majority) to open an account.
Other than cash, people can also invest in stocks, bonds, ETFs, and mutual funds in a TFSA. Gains on a TFSA are also tax free.
Related Post: How to Start Investing in Stocks in a TFSA (5 Steps)
3. Taxes on RRSP Savings Accounts
Contributions to RRSP are tax deductible up to your RRSP limit, which is stated on your previous year’s tax return or on your CRA account. Interest earned on RRSP is not taxable until you decide to withdraw it. Should you leave funds inside an RRSP savings account for years or decades, interest earned will not be taxable.
Interest earned will eventually be taxable at the time you choose to withdraw cash from RRSP. Withdrawals from an RRSP are taxable, similar to your employment income.
Withdrawing funds from an RRSP may be best when you do not have any employment or self-employment income, so that the marginal tax rates may be lower. Marginal tax rates are lower when you have a lower total taxable income, which can happen during retirement.
RRSP (Registered Retirement Savings Account) is a bit more complicated. In general, RRSP is best for retirement savings. For more details about how RRSP works, here is an article on the difference between RRSP and TFSA and the advantages and disadvantages of each.
How much tax do you pay on savings account interest in Canada?
The amount of tax on interest on savings accounts in Canada is the marginal tax rate (provincially and federally) of between 20% to around 55%. Interest on a savings account is taxable income. A tax rate of around 30% applies to savings account interest for people with a salary of about $60,000.
Bank Account Taxes in Canada
For the most part, deposits on bank account savings are not taxable. Taxes apply to interest income earned on bank savings, which is considered a taxable income in Canada. Any interest income earned has to be included as taxable income when filing taxes.
How much money can I save in my bank savings account without tax in Canada?
There is no limit on the amount of savings a person can maintain in a bank savings account. Balances on a savings account are not taxable, but interest earned is. However, CDIC insurance only covers up to $100,000 per account category per bank in Canada.
Should a CDIC member Financial Institution go bankrupt, up to $100,000 in deposits in savings, chequing, and GIC accounts are insured. Also, banks may have a daily limit on the amount of withdrawals and transfers you can do on a savings bank account.