Comments on: Deductible Borrowing

By: FourPillars

FourPillars — Wed, 31 Oct 2007 17:16:28 +0000

Well there you go – as predicted I didn’t know what I was talking about.

It’s good to learn this stuff.

I still think it’s double dipping but who cares? It’s whether it’s allowed or not that is important.

How I really feel – I supposed it applies to any type of marketing but I get annoyed when people misrepresent something. He talks about your mortgage “just melting away” like he’s found some magic potion – nary a word about any possible downsides.

Mike

By: Mr. Cheap

Mr. Cheap — Wed, 31 Oct 2007 16:37:38 +0000

I *think* I've found the relevant law. Look at: http://www.canlii.org///ca/sta/i-3.3/sec20%2Ehtml

Specifically, I think this section covers what I'm talking about:

Compound interest

(d) an amount paid in the year pursuant to a legal obligation to pay interest on an amount that would be deductible under paragraph 20(1)(c) if it were paid in the year or payable in respect of the year;

Would you agree with my reading that I can move the entire mortgage payment onto my LOC and deduct it?

20 (i) borrowed money used for the purpose of earning income from a business or property

Seems to me to clearly support putting the condo fees on my LOC and deducting them (I'm borrowing money to pay expenses that result in my earning income).

Plus, since I'm earning a profit on the property, it clearly meets the "reasonable expectation of profit criteria.

By: telly

telly — Wed, 31 Oct 2007 16:28:18 +0000

You’re right Cheap. After thinking about it more, I realized that Mike’s idea of this being double-dipping is incorrect. One is deducting the actual expense while the other is deducting the interest paid on that expense. This should be fair game (so just take my word for it because I don’t have a link ).

By: Mr. Cheap

Mr. Cheap — Wed, 31 Oct 2007 16:00:05 +0000

I’ve been looking all over, but I haven’t been able to find it again. Some time ago I found information on a government tax law site that basically said, if you’re borrowing money to pay something that’s deductible, the interest is deductible, otherwise its not (which would support deducting interest paid on a loan for condo fees).

If anyone has a link to more information, I’d like to reasure myself that I read this right…

By: Mr. Cheap

Mr. Cheap — Wed, 31 Oct 2007 15:22:27 +0000

You can definitely write off interest paid on a debt used to pay condo fees and renos (I think we’re all agreed on that, and I’ll start doing just that until I figure out the mortgage rules).

why don’t you tell us how you really feel?

By: Four Pillars

Four Pillars — Wed, 31 Oct 2007 03:24:14 +0000

I found this on Smith (of SM fame) website – the fact that I can’t find it anywhere else is a bit troubling.

http://www.smithman.net/cashflowdam.html

He does say to borrow to pay the expenses and generate deductible debt so you guys have that right (assuming Mr. Smith is right).

I’m assuming this would include condo fees and maintenance and renos.

I’ve never read his site before – I really think he is a moron

Mike

By: telly

telly — Wed, 31 Oct 2007 02:52:23 +0000

Hmmm…you make a valid point Mike.
I hope you’re wrong though!

If you read up on the cash flow dam (extension of the SM), they mention this technique and recently I read somewhere that it was questioned (and subsequently “approved” by the CRA). But I don’t remember the details, or where I read it so I’m really not offering much here am I?

By: Four Pillars

Four Pillars — Wed, 31 Oct 2007 02:32:32 +0000

Sorry to be so late to comment but it’s taken me this long to figure out what the heck you guys were talking about!

I’m no expert on real estate investing taxation so feel free to ignore if I’ve got this all wrong.

Mr. C – The interest on the mortgage is tax deductible because it’s for an investment property (we all agree on this). If you were to borrow from a LOC to pay that mortgage interest (which is already deductible) and then you write off the interest of the LOC, isn’t that double dipping? I don’t know if that is allowed or not but intuitively I would think it isn’t.

As far as the condo fees go and Telly’s renovations – are those not expenses which in themselves should be tax deductible? If you borrow from the LOC to pay for deductible expenses and then write off the LOC interest I think that is also double dipping.

Anyways – feel free correct/praise me….

Mike

By: telly

telly — Tue, 30 Oct 2007 20:21:53 +0000

I’ve thought about doing that as well and I could totally see that being justified (calculating the interest portion). I would just recommend keeping good notes / records just in case.

By: Mr. Cheap

Mr. Cheap — Tue, 30 Oct 2007 19:43:38 +0000

telly: yeah, I agree. Unfortunately, now that I’m not working I doubt I’d be in a good place to get approved for a LOC…

I calculate how much of each of my payments goes toward interest and how much towards principle myself, could I use that to “justify” that I’m only moving the interest portion of the payment onto the LOC? E.g. right now from my last payment, $38.12 went to principal and $88.39 went to interst, so could I withdraw 88.39 from my LOC? I caculate this myself though (its not from my bank), so I may be off by a penny or two…

FB is correct that given my low income, it won’t make a huge difference (in 2008 anyway, I’d like the deduction for 2007 if at all possible).