woodywoodford
12-26-2013, 10:35 AM
I was just reading here (http://www.moneysmartsblog.com/buying-dividend-stocks-on-margin/) that the interest paid on margin is tax deductible here in Canada. So how does that work if it's in a TFSA? I assume the interest is paid out of your margin'd account when you sell, along with teh commissions, but haven't done it before so could be wrong.
The specific quote if you don't feel like clicking the link:
In Canada you can deduct expenses for investment, including interest, which can make trading on margin more attractive. Instead of paying 7%, I’m actually paying 7% * (1-marginal tax rate). Say my marginal tax rate was 25%, I’m actually only paying 5.25% after I get my tax deduction. With the Bank of Montreal stock I bought recently, I’m anticipating a 4% dividend-yield, which should be 3.5% after I’ve paid taxes (since dividends are taxed at 1/2 the income rate). Therefore if the long term appreciation of this stock is greater than 1.75% buying it on margin makes sense (which is what I did).
Actually, re-reading that - he says expenses for investment, does that mean commissions are also deductible? If yes, same question applies - how does that work with a TFSA?
The specific quote if you don't feel like clicking the link:
In Canada you can deduct expenses for investment, including interest, which can make trading on margin more attractive. Instead of paying 7%, I’m actually paying 7% * (1-marginal tax rate). Say my marginal tax rate was 25%, I’m actually only paying 5.25% after I get my tax deduction. With the Bank of Montreal stock I bought recently, I’m anticipating a 4% dividend-yield, which should be 3.5% after I’ve paid taxes (since dividends are taxed at 1/2 the income rate). Therefore if the long term appreciation of this stock is greater than 1.75% buying it on margin makes sense (which is what I did).
Actually, re-reading that - he says expenses for investment, does that mean commissions are also deductible? If yes, same question applies - how does that work with a TFSA?