Personal Finance

is it possible to deduct interest on borrow money to TFSA?

  • Last Updated:
  • Jun 12th, 2009 9:58 pm
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[OP]
Jr. Member
Apr 12, 2005
104 posts
Toronto

is it possible to deduct interest on borrow money to TFSA?

Can I borrow money to invest in TFSA mutual/stock account and deduct the interest in my income tax return?
7 replies
Deal Addict
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Aug 12, 2007
1823 posts
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No you can not. Interest on borrowed money for investing in a TFSA is not tax deductible.
[OP]
Jr. Member
Apr 12, 2005
104 posts
Toronto
Thanks for the reply. Too bad it is not possible. Back to the drawing board...
Deal Addict
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Oct 25, 2001
2544 posts
67 upvotes
Oakville
As YYZFA said, you can't. However, can you qualify to borrow $150k at around 2.25% (prime)? Can you find a basket of Canadian dividend producing stocks that have passed through this downturn without reducing their dividends and still yield on average 5%?

If so, depending on your Marginal Tax Rate, the dividend income after taxes and after paying the loan interest (which IS deductible) could result in a net difference equal to around $5,000 in your pocket annually - the maximum that the TFSA will allow for contributions.

Way too much risk and exposure? Ok, borrow $15,000 at 3%. Put $5,000 into a TFSA into REITs which return 10% annually (including return of capital). The remaining $10,000 invest in some equities that have the chance to, but don't necessarily have to, pay income. Take the REIT income and use that to pay down the interest on the total loan of which 2/3 is tax deductible.

I suspect, however, you were looking at interest arbitrage. Borrow at a lower rate and invest at a higher rate without undue risk which would be made easier if you could write off the interest on the loan and not declare the interest as income. No dice, I'm afraid.
Deal Expert
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Dec 11, 2005
18566 posts
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cannon_fodder wrote:
Jun 12th, 2009 3:12 pm

Way too much risk and exposure? Ok, borrow $15,000 at 3%. Put $5,000 into a TFSA into REITs which return 10% annually (including return of capital).
Wow - you are going to reduce exposure by dumping monrey int REITs? IN this climate?

Sure we ar eon the brink of a recovery, but real estate is not going to recover to its previous growth rate for a long time, if ever. The whole market still has way too much inventory. I think 10% for this coming year would be a pipe dream.

Check out the DJ REIT index for the past 12 months - negative 43% http://www.google.ca/finance?q=REIT

Things look pretty much the same for any REIT I look at...
To be nobody but yourself - in a world which is doing its best, night and day, to make you everybody else - means to fight the hardest battle which any human being can fight; and never stop fighting. -- E. E. Cummings
Sr. Member
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Feb 21, 2009
579 posts
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brunes wrote:
Jun 12th, 2009 4:53 pm
Wow - you are going to reduce exposure by dumping monrey int REITs? IN this climate?

Sure we ar eon the brink of a recovery, but real estate is not going to recover to its previous growth rate for a long time, if ever. The whole market still has way too much inventory. I think 10% for this coming year would be a pipe dream.

Check out the DJ REIT index for the past 12 months - negative 43% http://www.google.ca/finance?q=REIT

Things look pretty much the same for any REIT I look at...
commercial REIT's like RIOcan and others will do fine......they held up pretty good in terms of results during the downturn stock took a huggeee beating.....i own it bought more and love the monthly destribution......
Deal Fanatic
Jul 1, 2007
7704 posts
564 upvotes
They held up during the downturn because they haven't been hit yet.
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