During a meeting with a client, it wasn’t until we started talking about boating that I found out that he had a $35,000 loan outstanding on his boat.  I was aware that he had a good unregistered investment portfolio.  Based on this conversation and a call to his broker, we were able to access cash from his investment account through the realization of GICs and other near-cash investments and pay off his boat loan.  He then set up an investment loan to put a similar amount of cash back into his portfolio, so that it could continue to grow.

He now has about the same amount of debt, but the interest is deductible on his personal tax return because the related debt was incurred to finance the purchase of investments.  Since he is in the highest tax bracket, the deduction gives him about a 47% tax savings on the interest he pays.

If you have not already discussed your complete financial situation with your accountant, now might be the time to do so.  When you next meet, bring a summary of your debts, as well as your income and assets.  If you anticipate a major purchase, you may also want to mention this.  They can decide what is relevant, so be open.  The more information they have, the more opportunities they have to identify for implementing tax saving strategies.

(Chartered accountants based in Mississauga and Etobicoke)