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I need some help.

A friend was set up with Manulife's M1 Mortgage account in 2008 by a financial planner and he then took an additional $75K out to invest. The FP didn't hold his hand through the whole thing and rather than having a $150K main account and a $75K sub account for the investment both were lumped into one account of $225K. Not a good thing.

The FP also didn't tell him to that the interest on the investment was tax deductible. Long story short, he had taken two years of M1 statements to his accountant to figure out.

Will CCRA accept any interest deduction?

His intention was to only pay interest on the $75K, so if the math was done on that would they accept that number?

In the event they wouldn't could he work work out in interest as a percentage ie 1/3 of the interest for the year was for the 75K investment and 2/3 was for the remainder?

Thanks for your help!

I am also calling CCRA on Monday.
 

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The accountant is figuring this out, yes? You are just looking for additional points of view?

CRA will probably not provide anything useful to you over the phone. They don't like responding to hypothetical questions, which is what this is unless you are the taxpayer or their authorized representative. They will refer you to IT533 and other interpretation bulletins.

The best he can hope to do is claim the deduction (if his accountant will sign off on that) and see if it is challenged. Carrying charges are among the most challenged/audited parts of a tax return, in part because they are very often calculated incorrectly.

In addition, the securities purchased with the borrowed money must be securities which have the potential to produce income: i.e., no companies with a no-dividend policy.
 

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The accountant is figuring this out, yes? You are just looking for additional points of view?

CRA will probably not provide anything useful to you over the phone. They don't like responding to hypothetical questions, which is what this is unless you are the taxpayer or their authorized representative. They will refer you to IT533 and other interpretation bulletins.

The best he can hope to do is claim the deduction (if his accountant will sign off on that) and see if it is challenged. Carrying charges are among the most challenged/audited parts of a tax return, in part because they are very often calculated incorrectly.

In addition, the securities purchased with the borrowed money must be securities which have the potential to produce income: i.e., no companies with a no-dividend policy.
I agree with MG that he has to calculate the interest used for investment and see what happens.

I disagree that you can't buy companies with no dividends. Potential income could come in the form of capital gains or future dividends.

For example you can borrow money to invest in a company you start yourself - it probably doesn't pay dividends or even make a profit in the beginning.
 

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In addition, the securities purchased with the borrowed money must be securities which have the potential to produce income: i.e., no companies with a no-dividend policy.
This is not true. I don't have the reference with me but one of the CRA bulletins clarified that common stocks could theoretically pay a dividend in the future even though they don't any now. Therefore, interest on capital borrowed to invest in stocks is deductible.
 

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This is not true. I don't have the reference with me but one of the CRA bulletins clarified that common stocks could theoretically pay a dividend in the future even though they don't any now. Therefore, interest on capital borrowed to invest in stocks is deductible.
You are both correct. what MG's saying is the company should not explicitly have prohibited dividend distribution.
 
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