Author Topic: Deducting loan interest when you borrow to invest  (Read 1047 times)

c-kat

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Deducting loan interest when you borrow to invest
« on: December 03, 2021, 11:42:10 AM »
We topped up our non-registered portfolio with a dividend ETF and a few blue chips.  We're getting 4% dividends and we borrowed at 1.39%.  It represent a very small amount of our portfolio so we are comfortable with it.

Just wondering how deducting the interst on the loan works. I have other stocks in the account, but obviously I will only use dividends from the ones I bought with the borrowed money for the deduction.  But can I put those stocks on drip?  And if I do, can I include the dividends on the additional shares when I deduct?  Or only the dividends associated with the original number I bought?

daverobev

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Re: Deducting loan interest when you borrow to invest
« Reply #1 on: December 03, 2021, 03:38:13 PM »
The income from the investments doesn't have to be used to repay the loan.

Hopefully you have a clear paper trail to show the CRA if needed:

Loan taken out, money in bank, money in brokerage, money invested.

You declare the divis and any cap gains/losses as usual. I think all you can't do is sell, withdraw the money, and spend it rather than paying off the loan... you can reinvest it in other stocks. I could be wrong on that as long as more money stays in the account than the amount of the loan. But the idea is you're borrowing to invest, if you're no longer investing it isn't tax deductible.

But yeah it's cleaner to do loan -> bank -> completely new brokerage account.