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Originally Posted by gasman
There is no free lunch, if you take out a LOC for a non-registered investment you can write off the interest, yes, but that isn't the same as "not paying interest" its paying interest at a discount, so you save somewhere between 25% and 48% of your interest, depending on your tax bracket.
Also worth it to note, that you can't write off interest if the investment is going into any kind of registered account (RESP, RRSP, TFSA, etc.)
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This also isn't taking into the account the risk that the CRA could try and pull a "business income vs capital gain" situation if you try and claim the interest deduction. You'll keep the interest deduction by get screwed on more taxes payable due to more inclusion without the capital gains. This is especially true due to recent rule changes where the investments are a primary source of income vs a very obvious secondary passive income (ie: Retirees vs mid career individuals with T4 slips/T2125). I don't think the CRA intended for that rule to hit retirees in that manner, but they've been quiet about the situation.
Quote:
Originally Posted by Cappy
Gear grinder and question for you financial gurus.
I am doing some unexpected home renovations and the estimated cost is higher than i originally thought it would be. I had previously planned to use money in a CASH.TO account and general savings over the course of the reno to pay it, but now that is looking less likely to cover the full amount.
No mortgage, so i could take out a small mortgage on it, but i suspect the rates are too high to be worthwhile.
I can take money out of my TFSA or a non-registered investment account to cover the difference. With the non-registered account, I would likely owe capital gains, but i do have tax loss harvesting in this account.
Any (non-binding internet) advice on potential best option moving forward?
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Answer is, it depends.
If you have a tax deferral bottleneck where sooner or later you're going to have some higher yearly income that might get taxed at the middle or higher tax brackets (ie: large RRSP/RIF looming, income from corporations slowly draining out, pregnant gains in non-registered accounts, steady income pre-CPP, OAS, pension/LIRA kick in etc.) then taking some of those registered investments in your lower tax bracket now might make sense.
But if you don't have such a deferral bottleneck coming up, then using the TFSA investments to save the cash taxes to reinvest makes more sense. (Because there is no deferral nor tax savings to realize).
However, this is all assuming that you first have exhausted other options like the greener homes grant, disability renovation tax credits or multi generation renovation tax credits. IMO, these three are better options to investigate BEFORE you do the work prior to investigating the taxable vs non-taxable approach to cashing out investments.