Personal Finance

Leveraged investing - which spouse?

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  • May 26th, 2015 12:35 am
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[OP]
Deal Addict
Nov 25, 2002
1030 posts
297 upvotes
Brampton

Leveraged investing - which spouse?

My wife and I have a remaining mortgage balance of 42% of property value, and a HELOC for 33% of property value (currently with zero balance). Currently all our savings are in registered accounts using ETFs (Couch Potato) - RRSPs and TFSAs maxed out, and RESP grant-eligible contributions maxed out as well.

Don't have much cash flow left for non-registered investements, but was considering doing leveraging the HELOC with a monthly investment into a non-registered Couch Potato portfolio. The HELOC is joint, and the non-registered account with be joint with survivorship as well.

However, from reading online, I understand that I can make a decision at the beginning as to which spouse (or what percentage) will claim the interest deduction and investment gains. Once I make the decision, I understand that I have to stay consistent. The only thing I'd have to justify is that the relevant spouse is servicing the interest payments with their own money. The Q is, what spouse should be claiming this?

My wife is currently on extended maternity leave with zero income, expected to be back at work late next year. I expect that my income will likely be higher than hers in future years, and she has a DBPP which will reduce her taxable income even further.

The interest deduction would be more useful to me, but the gains would be better taxed in her hands, while the eventual liquidation of the portfolio would be better in my hands (as she would be receiving her DBPP payments). Any ideas?
4 replies
Deal Fanatic
User avatar
Jan 27, 2007
5108 posts
971 upvotes
T.
Technically speaking if the house is owned 50/50 then the heloc will be 50/50, the income 50/50.

You cant just decide at the outset. The income and expense will flow from how the capital was originally deployed.
[QUOTE]I know you are, but what am I.... ;) [/QUOTE]
[OP]
Deal Addict
Nov 25, 2002
1030 posts
297 upvotes
Brampton
dutchca wrote: Technically speaking if the house is owned 50/50 then the heloc will be 50/50, the income 50/50.

You cant just decide at the outset. The income and expense will flow from how the capital was originally deployed.
If it was capital, agreed. In this case it's debt, regardless that the capital used to secure the debt is jointly owned.

See http://www.advisor.ca/tax/tax-news/geor ... r-you-2544 and http://www.ascentteam.com/upload/Archiv ... _Rules.pdf.
Deal Fanatic
User avatar
Jan 27, 2007
5108 posts
971 upvotes
T.
I read the part about low income and assumed your wife would or could not make the payments on the loc. When she goes back to work can she "afford" the payments?
[QUOTE]I know you are, but what am I.... ;) [/QUOTE]
[OP]
Deal Addict
Nov 25, 2002
1030 posts
297 upvotes
Brampton
dutchca wrote: I read the part about low income and assumed your wife would or could not make the payments on the loc. When she goes back to work can she "afford" the payments?
Yes, she definitely could, if that's the beneficial way to do it.

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