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 | Tax Deductible Alternatives
Many Canadians, particularly those with little RRSP contribution room, are seeking tax-deductible investment options beyond their RRSPs. In this section we identify the best tax-deductible alternative to use.
Traditional leverage is where you borrow to invest outside of RRSPs. When borrowing to invest inside RRSPs, the original investment is tax deductible but not the interest expense. When borrowing to invest outside of RRSPs, the original investment is not deductible, but the interest expense generally is.
Leverage is a controversial and often misunderstood investment strategy. Based on average historical returns, it has the potential to produce more wealth than is possible without taking advantage of other people’s money and the tax laws.
Here is a five-point conservative leverage checklist for you:
| 1. | Stay conservative on cash flow, collateral, and emotions |
| 2. | Eliminate the risk of a margin call |
| 3. | Invest for the long term (8 – 10 years) |
| 4. | Diversify your investments |
| 5. | A trusted advisor can help you understand the advantages and disadvantages, implement and stick to the plan |
NOTE: This strategy is not for everyone. Before you borrow money for any investment, please consult with your financial advisor to determine if this strategy makes sense for you.
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