# Student Line of Credit Interest Tax Deductible (used for investments)



## bctaxboy (Oct 28, 2011)

Hi there,

I was wondering if anyone could help me with regards to a question I have. I currently attend medical school in BC and received a large professional student line of credit to help fund my studies. I ended up receiving more student loans than I expected, and consequently did not need to dip into my line of credit.

However, I did use about $5,000 from my line of credit to purchase some investments over the last few months. I sold them yesterday and now have capital gains which will be included in my income. On that $5,000 I was paying interest from the moment I withdrew the money and put it into my online investment brokerage - total interest paid was about $300. 

So my question is, am I able to deduct that $300 from my income? My understanding is that had I gotten a "general" loan and used it for investment purposes, this would be totally acceptable. However, because my loan is considered a "student line of credit", will that affect anything in terms of how the CRA will view this?

I am only concerned about the tax perspective, not whether or not my bank likes what I did. 

Thanks very much for any input.
Julia


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## cardhu (May 26, 2009)

Makes no difference that its labeled a “student” LOC … CRA doesn't care about that … what matters is what you used the borrowed money for … therefore, it depends on what these “investments” were … generally, most common shares are fair game, but many other forms of “investment” are not. Since you didn’t say what you invested in, its not possible to answer your question definitively.


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## bctaxboy (Oct 28, 2011)

Awesome, thanks Cardhu. 

All the investments were in publicly traded Canadian equities on the TSX and were held outside of registered accounts. Sorry should have clarified that before.

But considering what you said and given the nature of my investments, it sounds like I will be able to deduct the interest from my line of credit (awesome!). 

One other quick question if anyone cares to further endulge: next year, my only income is going to be from capital gains. I understand that 50% of my gains will be included as taxable income. I am curious if there is anything else I should be aware of with regards to having 100% of my income from capital gains, or if it is essentially the exact same as having only employment income the only difference being the 50% inclusion.

IE: is 40K of capital gains going to be taxed the same as 20K of employment income (ignoring EI, CPP, etc.).

Thanks very much


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## Eclectic12 (Oct 20, 2010)

bctaxboy said:


> Awesome, thanks Cardhu.
> 
> All the investments were in publicly traded Canadian equities on the TSX and were held outside of registered accounts. Sorry should have clarified that before.
> 
> ...


For the investments on the Line of Credit (LoC), check out the rules for eligible investments and keys to keeping the interest deductible.

http://www.taxtips.ca/personaltax/investing/interestexpense.htm
http://www.milliondollarjourney.com/key-tax-considerations-on-an-investment-loan.htm
http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns206-236/221/menu-eng.html

The two common issues that I've seen people make are not checking for Return of Capital (RoC) to deal with it and including the buy/sell commissions in the loan.



As for the capital gains income, yes it will be the same as half as much income. However, the process when filling out the tax return is to fill out Schedule 3 for each investment sold to calculate a total capital gain. Then half the capital gain will be reported in the income calculation.

http://www.milliondollarjourney.com/how-investing-taxes-work-part-1.htm
http://www.milliondollarjourney.com/how-investing-taxes-work-part-2-dividends-and-interest.htm


Also - if interest expense from the LoC comes into play, that will be in Line 221 of the tax return "Carrying Charges and Interest Expenses".

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns206-236/221/menu-eng.html



If you want to run some scenarios for the tax return using the old 2010 version, here is a link to a spreadsheet:
http://www.peeltech.ca/mytax.shtml

Or for free versions of tax software:
http://en.wikipedia.org/wiki/Canadian_tax_preparation_software_for_personal_use

This will be an estimate but it will be close and will help provide practice for the final tax return.


Cheers


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## bctaxboy (Oct 28, 2011)

^^^

Great thanks so much. I had a look at the links you posed - very helpful.

I just realized I had one more quick question - the way my line of credit currently works is that the interest is being capitalized each month. In order for the interest to be tax deductible, is it sufficient to show the CRA interest charges that are being capitalized, or do I need to actually pay the interest?

Thanks very much


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## cardhu (May 26, 2009)

I wouldn’t suggest relying on personal internet blogs as a definitive resource, any more than you'd rely on an internet forum as a definitive resource. They're fine as an introduction to the topic, of course, as long as you don't accept what you read as gospel. 

Taxtips.ca is generally OK, but they can and do make mistakes. 

CRA’s publications are about as definitive a guidance as you’re going to get on tax matters, although sometimes the language can be a bit of a slog. 

There’s no problem including the buy/sell commissions in the loan. They have no effect on deductibility.


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