Investors on the lookout for an often overlooked tax deduction should scan their T4 slips carefully. If there is a notation at the bottom of the slip that refers to Box 36—Interest Free or Low Interest Loan, it’s possible that you will qualify for a deduction under Carrying Charges, Line 221 of the tax return.
Carrying charges are expenses incurred to earn investment income and can include:
- The cost of a safety deposit box
- Accounting fees relating to the preparation of tax schedules for investment reporting
- Investment counsel fees (This does not include commissions paid on buying or selling investments).
- Canada Savings Bonds (CSBS) payroll deduction charge
- Life insurance policy interest costs if an investment loan was taken against cash values
- Management or safe custody fees
- Interest paid on investment loans if there is a reasonable expectation of profit from the investment, even if the value of the investment has diminished.
- The taxable benefit reported on the T4 Statement of Remuneration Paid (slip) for employer-provided loans that were used for investment purposes
To the latter point, an employer may provide an interest free or low-interest loan to employees who want to invest in the employer’s company or use the money for investment purposes elsewhere in the markets.
If you took advantage of such an opportunity, your employer would have added to your employment income in Box 14 of the T4 slip, a taxable benefit representing the difference between the no-interest or low interest loan and the prescribed rate of interest set by CRA (Canada Revenue Agency). That difference can be claimed on Schedule 4 of your tax return, resulting in a deduction on Line 221. However note that interest is not deductible when investments were made to a registered account or a TFSA.
If you have forgotten this in the past, there is more good news. You can go back and recover missed carrying charges by filing an adjustment to prior returns; all the way back to tax year 2000. So happy filing (and remember to do so before April 30 to avoid interest penalties on balances due!)
Evelyn Jacks is the founder and president of Knowledge Bureau, a leading national educational institute and publisher focused on providing continuing professional development for practicing tax and financial advisors. Ms. Jacks is a well known by millions of taxpayers in Canada as a best-selling author of 45 books on the subject of personal tax and financial planning, including Master Your Taxes.