The interest you pay on the loan might not be tax deductible if CRA deems it was used to "earn" capital gains instead of income. Interest deductibility is for business purposes, ie income, not to gain capital. One small caveat to leveraged investments.You might also consider leveraged investing.
In a nutshell (and you should investigate it thoroughly), the premise involves borrowing money for investing. You get a loan from a bank and make the monthly payments on the loan. The interest you pay on the loan can be used to reduce your taxable income come tax time. The loan is secured by the investments, as opposed to personal equity (e.g. house). Over time, the value of the investments exceeds the amount of the loan, which gives you some additional hobby money (or whatever you want to spend it on). A big plus with leveraging is the fact that you have significantly larger amounts of money working (and growing) for you. For example, a $300/month loan might generate $90,000 to work with. Most of us probably don't have a spare $90k kicking around to invest, but can prehaps afford $300/month. Since you've got significantly more money invested, the growth on that amount of money is also significantly more in terms of pure dollars.
Caveats abound, of course, which is why you should research it carefully. The quality of the investments is paramount, because even if they lose value, you're still on the hook for the outstanding amount of the loan. Depending on the types of investments you choose, they may generate dividends or capital gains, which are taxable. When you eventually wind-up the investments (which you can do at any time), you will have to pay tax on 50% of the capital gains that you realize. However, when you look at the pure dollars of net gain, it is a significantly larger amount because you're working with a bigger pile of money to start with.
Leveraged investing isn't for everyone, but it is another avenue worth pursuing.
SH813
After maxing your TFSA [not much though since it's $15K limit max right now] you might consider corporate class mutual funds. This is a structure where a selection of funds are held in one corporation [rather than separate mutual fund trusts]. This means you can switch within the different funds with no deemed dispostion and thus you don't have to consider incurring capital gains when rebalancing for safety or opportunities. Another benefit is most distributions are minimized [and usually eliminated for years] and selecting a CC with losses on the books means future distributions are deferred even longer [as someone astutuely pointed out]. This structure also converts interest income and foreign dividends into capital gains when you ultimately sell units out of the CC [i.e. halves the tax rate]. It also allows you to defer gains until you remove funds from the structure which can mean potentially decades of deferral.Is it worth investing, anyone who puts money in this I would appreciate some background knowledge.
No...that doesn't. My RRSP is not a registered fund by that definition. But it is a registered investment...consisting of equities, not funds of any kind.TFSAs are not registered funds. Contributions to TFSAs are made with after-tax dollars, as opposed to registered vehicles such as RRSPs, which are funded with pre-tax dollars. CRA allows you to deduct contributions to registered plans, but contributions to TFSAs are not deductible.
The definition of "registered" as provided by the CRA:
"A registered investment (RI) is a trust or corporation, units of shares of which are marketed as eligible investments for registered retirement savings plans (RRSPs), registered retirement income funds (RRIFs) and deferred profit sharing plans (DPSPs). It is a pooled investment vehicle similar to mutual funds used by individuals."
Hope that clarifies things.
SH813
I think we are talking about two different things: Registered FUNDS vs REgistered PLANS.TFSAs are not registered funds. Contributions to TFSAs are made with after-tax dollars, as opposed to registered vehicles such as RRSPs, which are funded with pre-tax dollars. CRA allows you to deduct contributions to registered plans, but contributions to TFSAs are not deductible.
The definition of "registered" as provided by the CRA:
"A registered investment (RI) is a trust or corporation, units of shares of which are marketed as eligible investments for registered retirement savings plans (RRSPs), registered retirement income funds (RRIFs) and deferred profit sharing plans (DPSPs). It is a pooled investment vehicle similar to mutual funds used by individuals."
Hope that clarifies things.
SH813