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Investment income when tax splitting via spoual loan
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| hacksepe |
posted on: March 30, 2009 at 5:48 pm
I was interested in your recent Globe and Mail article about lending your lower earning spouse to invest with a 1% loan. Here is my conumdrum. In order to make such a loan I must borrow on my home equity LOC which is currently happily at 2.5% but variable. Am I able to deduct the 2.5% I pay to invest in a loan to my spouse at 1%? i.e. is the loan to my spouse considered an investment, and can I deduct interest on my LOC used to fund it (Note my wife and I share the LOC).
While at first that seems unreasonable, consider this. If I were to invest the funds myself, I would be eligable for a tax deduction on the LOC interest. If my wife invests the money, she is only able to deduct the 1% interest, not the original 2.5% LOC interest.
If interest rates rise such that the difference between my investment earning and my LOC interest costs becomes small compared to the LOC interest rate costs, then I would be better off investing the money myself than loaning it to my wife to invest as my deduction would rise with the rates and hers wouldn't. My LOC rate is currently so low that it currently would earn more if I do lend it to my wife (assuming I can get say 6% on a corporate bond for example). But I cannot expect my LOC rate to stay low forever.
What is Revenue Canada's position on investment interest losses when there is only a slim chance of profit? While it is unlikely that lending from a variable LOC to invest in a 1% fixed rate loan would ever be profitable, it is not impossible (Banks can set their own prime rates even though they tend to follow BofC).
Thanks for any advice!
Related Link: www.theglobeandmail.com/servlet/story/LAC.20090312.CESTNICK12/TPStory/TPBusiness/
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