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



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


  • 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

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