Interest is one of the three forms of investment return. The others are dividends and capital gains.

Sources

Interest is earned from

• annuity payments received (taxable portion)
• bonds
• Guaranteed Interest Certificates (GICs)
• mutual funds
• policy dividends left on deposit
• savings accounts
• segregated funds
• T-Bills
• term deposits

Taxation

• the most heavily taxed form of investment returns
• 100% taken into income and taxed at the marginal tax rate for ordinary income
• Imputed Interest = Purchase Price - Market Value

Tax-Deductible Loan Interest

Interest on loans (including policy loans) taken to earn income through a business or investment is deductible if

• legal obligation to pay the interest
• interest is paid in the tax year the deduction is claimed
• interest rate is consistent with current market interest rates
• income from the property is nonexempt income