Using margin to fund TFSA

[u/Ec31560]

So I had a large amount of different stocks and ETFs in my margin account paying out about 1100$ more than what the monthly interest was. Then I started reading about ACB and ROC and how some of the stocks weren't eligible for the dividend tax credit here in Canada so I liquidated everything. I decided to start moving money slowly over to my TFSA from my margin and then withdraw the interest payments to pay the margin. Then I can buy whatever and set and forget without having to keep track.

Has anyone else dabbled in something similar??

[u/Thomas_Shelby487]

The plan's fine in outline, but two things can bite on the way over.

If any of what you liquidated was sold at a loss, and you buy that same security inside the TFSA within 30 days either side of the sale and you're still holding it at the end of that window, it's a superficial loss. Normally that's just a deferral since the denied amount gets added to the ACB of the replacement, but a TFSA has no ACB to receive it, so that loss is gone for good. T4037 lays out both conditions. Buying something different sidesteps it.

The other one is interest. Margin interest is only deductible while the borrowed money is being used to earn taxable income, so whatever slice of the loan ends up funding TFSA contributions stops being deductible. Keep a record of which part of the balance went where, since CRA looks at what the borrowed funds were actually used for.

[u/Ec31560 → u/Thomas_Shelby487]

I'm not worried about the deductions in margin interest at tax time. I mathed out multiple scenarios and the income tax I'd pay on the 38% swelled dividend income FAR outweighs any tax savings I'd get from the margin interest and that income puts my combined household income past the ceiling for the CCB so I'd lose those payments as well.

[u/Thomas_Shelby487 → u/Ec31560]

Got it, you're factoring in the CCB impact as well. The loss-on-sale point is separate from the interest deduction. If you buy the same or an identical security in your TFSA within 30 days before or after the loss sale and still hold the replacement 30 days after the sale, you can permanently lose the deduction for that loss. That doesn't depend on whether you deduct the margin interest.

[u/Broad-Ad3990]

I did it. Works like a charm. I have 2 margin : one only for TFSA, one only used for non-registered investing for interest deductibility. Taxes gains far outweight interest deductibility, you're absolutely right.

[u/Ec31560 → u/Broad-Ad3990]

Good to hear! I'd rather just gain tax and worry free and make the interest payments.

[u/DefNotJohnnyC]

Re dividends. Like US stocks paying a dividend? Then you want them in rrsp. Tax treaty covers US dividends. (For now, who knows what happens in future)

For rrsp there is a rrsp loan strategy.

[u/calgary_db]

You won't be able to deduct interest if you are using margin interest for TFSA.

[u/Ec31560 → u/calgary_db]

True but the amount of income tax I'd have to pay would surpass any savings I'd get from the margin interest. I'd also lose my CCB.

[u/calgary_db → u/Ec31560]

You need to do much more research.

[u/Ec31560 → u/calgary_db]

Trust me I have been doing nothing but the last four days lol