What happens when you report your savings interest for income tax?
Say you have a very basic but high interest savings account, and you gain a lot from the interest say from a couple hundred to $800, or what if $20 000, hypothetically speaking that is. Will the government [in Canada] tax it? Will it eventually not be worth investing money because you will have to pay higher taxes?
Even if you pay tax at the highest marginal rate, you will still get to keep over half of the money, so I don't see how that would be true. I suppose it might eventually affect your eligibility for guaranteed income supplements and GST credits, but those are geared towards lower income people, so why aim to keep yourself there? If your investments are generating more and more interest, then that is a good thing.
If you had enough money to generate $20,000 in interest, you'd have at least $200,000 (based on 10%, which is a very high rate of interest at this time). With that kind of money, you would most likely see someone about your investments, and they would advise you to diversify your portfolio. Dividends, and capital gains, for example, are given more favourable tax treatment than interest is.
