Feb 082014
 

A dedicated reader recently emailed me about how I’ve managed to reach my financial position today without making a large income. So I thought I’d reveal one of my best kept secrets to becoming rich: Taking money from the government 😉

I’ve blogged about my various income streams in the past, but there is one income source that I have never talked about, until now. This income provides me with thousands of dollars every year! (゜o゜) It’s undeclared income so I pay no taxes on it, which is perfectly legal 😀 It’s also not disclosed in the list of incomes on my take home pay vs expenses graph because it’s not technically a legitimate income 😕 But it is 100% passive, and gets automagically deposited into my bank account 🙂

In many countries like Canada and the U.S., the interest we pay on loans for investment purposes is tax deductible, as long as the investment is expected to produce an income, like with dividend paying stocks or rental properties. So if we pay $1,000 of interest this year on an investment loan, and our marginal tax bracket is 30% (like mine is,) then the tax man will give us back $300.

14-02-taxcat, tax deductible interest, passive income

Here’s a look at all my tax deductible debts taken from my latest net worth update 🙂 I’ve left out my mortgage and RRSP loan because those do not qualify for interest tax deductions.

  • Farm Loans: $208,300 @ 3.89% annual interest rate = $8,100 of interest /yr
  • Margin Loan CDN: $27,900 @ 4.25% = $1,200 interest /yr
  • Margin Loan US: $25,000 @ 4.50% = $1,200 (converted to $CAD)
  • TD Line of Credit: $33,700 @5.25% = $1,800
  • CIBC Line of Credit: $14,000 @ 5.5% = $700
  • HELOC: $17,900 @ 3.5%= $600
  • Total Tax Deductible Interest = $13,600

So after paying $13,600 of tax deductible interest this year I’ll be getting 30% of that, or roughly $4,000, back from the government 😀 This refund has zero risk since I’m guaranteed to receive the $4K regardless of my investment’s performance. Thank goodness I have debt 😀 Otherwise I wouldn’t be getting any of this money 😉

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