Do You Pay Taxes on a High-Interest Savings Account?

Yes. In Canada, interest earned in a regular high-interest savings account is generally considered taxable income.

You must report the interest on your income tax return, even if you do not receive a tax slip from your financial institution.

KOHO High Interest Savings

It is a prepaid Mastercard, so you spend your own money while still earning high interest.

With KOHO High Interest Savings, you can:

• Grow your savings up to 3.5% interest
• Earn a 2% cash back rate on groceries, eating, drinking, and transportation and 0.5% cash back on everything else
• Unlimited transactions and free e-transfers
• No minimum balance required, ever

How Is Savings Account Interest Taxed?

Interest from a non-registered savings account is added to your taxable income.

Suppose you keep $10,000 in a high-interest savings account and earn $350 in interest during the year.

You would generally report the $350 as interest income on your tax return.

The exact amount of tax you pay depends on your overall taxable income and marginal tax rate.

Do You Get a T5 for Savings Account Interest?

Your financial institution may issue you a T5 Statement of Investment Income showing how much interest you earned.

However, you may not receive a T5 if your total investment income from that payer is less than $50.

That does not make the interest tax-free. The CRA says interest must still be reported even when you do not receive a T5.

Interest and other investment income is generally reported on line 12100 of your tax return.

Do You Pay Tax on a High-Interest TFSA?

Generally, no.

A TFSA can hold cash savings and other investments. Interest earned inside a TFSA is generally tax-free, and qualifying withdrawals are also tax-free.

For example, if you earn $350 in interest inside a TFSA, you generally do not add that $350 to your taxable income.

This makes a TFSA potentially useful if you want to earn interest without paying income tax on those earnings.

Contribution limits still apply, and overcontributing can result in tax penalties.

What About an RRSP?

Interest earned inside an RRSP is generally not taxed while the money remains in the plan.

Instead, withdrawals from an RRSP are generally taxable as income when you take the money out.

This is different from a TFSA, where eligible withdrawals are generally tax-free.

What About an FHSA?

An FHSA can also allow eligible savings and investments to grow within a registered account.

If you meet the requirements for a qualifying withdrawal to purchase a qualifying first home, the withdrawal does not have to be included in your taxable income. Non-qualifying withdrawals are generally taxable.

Do You Pay Tax on the Money You Deposit?

No.

You are not taxed simply because you move your own money into a regular savings account.

The taxable portion is generally the interest the account earns.

For example:

• You deposit $10,000: not additional taxable income
• Your account earns $400 of interest: $400 is generally taxable
• Your balance becomes $10,400: only the interest portion is generally reported as investment income

What If You Have a Joint Savings Account?

If a savings account is jointly owned, the interest is generally reported according to how much each person contributed to the account.

For example, if you contributed 70% of the money and the other account holder contributed 30%, the interest would generally be reported using the same proportions.

Is a High-Interest Savings Account Worth It If the Interest Is Taxable?

It still can be.

Paying tax on interest does not mean you lose all of the interest you earned. You only pay tax on the taxable income based on your applicable tax rate.