Deducting mortgage interestSent: Wednesday, January 04, 2006
12:25 PM
To: radioshow at centa.com
Subject: Deducting mortgage interest
I have been reading information on deducting mortgage interest
and am looking for advice on how I can best arrange this. We have
a $130K mortgage on our house appraised at $400K. We have a
closed 5yr mortgage @4.65% and are allowed annual lump sum
payments of 15%. What I am contemplating doing is taking out an
additional $100K loan?? on the house and putting it into a GIC
or other low risk investment. I have a $35K unused LOC I could
access if needed as well. Then I would take out a 15% lump sum
payment annually from this investment account and put it towards
my mortgage. Should I take out the first 15% lump sum payment
right away or say wait 6 mths to reduce any tax scrutiny.
I estimate this should save me approx $10k in interest. The total
interest I would pay if I don't change my tact and don't make any
lump sum payments would be $53K.
Appreciate any advice. thx
-------------------------------------------
david ingram replies:
What you are proposing does not work, you are merely borrowing
more money to pay off the house loan that was used to buy the
house. It is substituted, not borrowed for investment purposes.
To be deductible, the money's end use has to be borrowed for
investment purposes. Your proposal does NOT accomplish this.
Read my November 2001 newsletter which you will find at
www.centa.com in the top left box. - click on newsletters, click
on 2001, click on November.
Then get hold of Fraser Smith's book, the Smith Manoeuvre which
explains the procedure as well.
Last but not least, read CRA's Bulletin IT-533 -
http://www.cra-arc.gc.ca/E/pub/tp/it533/it533-e.pdf
I am also available for individual consultations by phone or in
person.
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