Canadian Money Forum banner

1 - 3 of 3 Posts

·
Registered
Joined
·
2 Posts
Discussion Starter · #1 ·
I do have a margin account and based on the money I borrowed I am paying interest. Some of the shares that I am holding are paying dividends every quarter and some do not. During a year some of shares dispositioned (maybe even before paying dividends) but I have always received dividends querterly from some of stocks that I am holding. And the amount of interest I am paying is more than dividends I received for a total year. So, can I claim this interest as investing income charges. Consider that some of the shares I am holding are just for capital gains but I haven't track how much of my protfolio are from thoes shares.
 

·
Registered
Joined
·
20,517 Posts
I'm not an expert, but I believe that margin interest expense in this scenario can be claimed under Carrying charges and interest expenses.

I think that as long as the shares have potential to pay dividends, margin interest can be claimed.
 

·
Registered
Joined
·
11,215 Posts
The high level requirement that makes the interest tax deductible is for the funds to be used for earning income, where the use can be traced/documented. The dividend or distribution paying stock is fine. The CG only stock is a grey area. Some companies like Microsoft and Stantec started out as CG only to eventually pay dividends so the potential is there, regardless of what is happening now. CRA has stated in their interpretation bulletin that as long as the company in question does not publish that they will never pay dividends or that dividends are not an option in the foreseeable future - CRA will assume there is potential in the future, allowing the interest deduction.

The details of the bulletin including several other scenarios and test requirements is available at ... https://www.canada.ca/en/revenue-ag...ax-folio-s3-f6-c1-interest-deductibility.html


A couple of other things to be aware of.

Investments like REITs and ETFs pay cash that many assume are dividends. This is rarely the case as they pay a mix that can change year by year. The potentially problematic one is return of captial (RoC). Officially one is supposed to repay the loan as the RoC is paid (ex. paid $20 where $4 is RoC, pay down the loan by $4). It seems that as long as the RoC is kept in the account and re-invested, it is okay.

Keeping the loan to strictly investments keeping things simple. If one has investments and say, payment for a new car/roof on the same loan, the split between what is interest tax deductible and what is not is complicated.

https://www.milliondollarjourney.com/key-tax-considerations-on-an-investment-loan.htm
https://www.taxtips.ca/personaltax/investing/interestexpense.htm
https://business.financialpost.com/...-about-deducting-interest-on-investment-loans


My investment portfolio interest is reported on line 221 "Carrying Charges and Interest Expenses" for pretty much a decade now.


Cheers
 
1 - 3 of 3 Posts
Top