If you are using the money to start or buy into a business or to buy equities the interest on the loan may be tax-deductible.

Here's how that works. Let's say you are in a 40% tax bracket meaning that for every dollar you earn, you pay 40% in income taxes. Let's say you are paying off a loan at $1000 per month. In the first year you would pay $3942.99 in interest. Because the loan is a business expense, you receive 40% of that amount or a $1577.20 tax return. This is equivalent to a significantly lower interest rate.

This tax advantage could apply to:

  • A business that you started or bought into.
  • Renovating your house to create a rental apartment.
  • Buying a rental property.
  • An equity investment in a Canadian company.

When considering the tax implications of an investment, you should always consult a certified accountant or your financial advisor.

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