How Debt Swapping Works...

Debt Swapping: Make debt work for you!Not all debt is created equal. Interest expenses incurred for the purchase of non-registered income generating investments are generally tax deductible. Interest on loans to purchase personal assets, pay personal income taxes or buy your home, however, are not. What is Debt Swapping? Essentially, it is converting non-deductible debt into deductible debt. How? Sell your non-registered assets to pay off your non-deductible debt. Next, take out a line of credit to repurchase non-registered securities and deduct the interest! Your after-tax cash flow increases, but your overall level of debt remains the same.

Assumptions: 3 Under current income tax legislation, case law and CRA assessing

policy, interest incurred on money borrowed to purchase non-registered income-producing investments is tax deductible. Income for the purposes of the Income Tax Act (Canada) does not include capital gains. Further restrictions on the deduction of interest apply in the Province of Québec.

3 Taxable capital gains may be realized when selling investments. 3 Capital losses realized on a disposition may not be fully deductible if the same

non-registered investments are purchased within a period that begins 30 days prior to their disposition and ends 30 days after the disposition.

3 Individuals must qualify for a line of credit/investment loan.

3 Lump-sum payments on a mortgage may incur penalties. 3 The after-tax cost of borrowing on the Line of Credit (investment loan) must be

less than the before-tax interest charged on the mortgage loan and car loan for this strategy to be effective.

3 The CRA has commented positively on the implementation of basic debt swap transactions; however, the CRA is not legally bound by their policy statements. In some circumstances, particularly those involving transactions between non-arm’s length parties, the CRA may consider debt swap transactions a misuse of the Income Act and apply the General Anti-Avoidance Rule to deny any resulting tax benefits.

y o u ( b e f o r e . . . ) t H e D e b t S Wa p : y o u ( n o W. . . )

n o n - r e g i S t e r e D a S S e t S

n o n - D e D u c t i b l e i n t e r e S t c o S t S

n o n -r e g i S t e r e D

i n V e S t M e n t S S e l l n o n - r e g i S t e r e D i n V e S t M e n t S t o pay o f f p e r S o n a l D e b t S

( M o r t ga g e , c a r l o a n )

c a r l o a n c a r l o a nM o r t ga g e M o r t ga g e

i n V e S t M e n t l i n e o f c r e D i t

ta x D e D u c t i b l e i n t e r e S t

n o n - r e g i S t e r e D a S S e t S

Insurance products and services distributed through I.G. Insurance Services Inc. Insurance license sponsored by The Great-West Life Assurance Company. Written and published by Investors Group as a general source of infor-mation only. Not intended as a solicitation to buy or sell specific investments, or to provide tax, legal or investment advice. Seek advice on your specific circumstances from an Investors Group Consultant. These strategies may involve loans for investing purposes and are based on the assumption that the interest costs are tax deductible for Federal income tax purposes. Borrowing to invest is a long-term investment strategy and may be more suitable for higher income individuals, may not be appropriate in all circumstances, and is not for everyone. Gains from positive fluctuations in the investment value will be magnified, but losses from negative fluctuations will also be magnified. Trademarks, including Investors Group, are owned by IGM Financial Inc. and licensed to its subsidiary corporations. © Investors Group Inc. 2009 MP1261 (12/2009)

SHANNON BOSCHY BFA, CFP Mutual Funds Representative, Financial Security Advisor

Investors Group Financial Services Inc.Financial Services Firm

Tel: (613) 282-5370 Shannon.Boschy@investorsgroup.com