A client has interest expense in 2021, used to invest in stocks, didn’t have any income, so she didn’t claim it, now in 2022, she wants to claim both year’s interests, I don’t think that’s possible, best to amend the 2021 return, but she said, she doesn’t have enough income in 2021, so if claimed it there, then the expenses will be lost, unless it can be carried forward.
I tried enter the interest on a test return, doesn’t look like it can be carried forward, it still deducted from income, but she is not paying taxes anyway.
I looked at carrying charge, looks like it’s only deductible if it has interest and dividend income, so if there is just capital gain, what do we do with the interest expense?
So if she was doing her own tax return, she would intend to commit illegal offences, and offences per the ITA.
Now she is attempting to collude with a “tax preparer” to either try to attempt to disguise the illegal act, or to find somebody that can be blamed and prosecuted when the illegal offence is discovered.
You should tell her to go away and find somebody else to “help” her with her tax return, as you wish to avoid filing illegal tax returns.
I am not going to included the 2 years, but if the investments are in public company stocks, then looking at the taxtips info, it should still be deductible? If the stocks just happen not to pay any dividend now
If an investment will never earn anything except capital gains, then the interest expense is not deductible. If an investment such as common shares is not currently paying dividends, Canada Revenue Agency (CRA) will still normally allow the deduction of interest expense, if the shareholder has a reasonable expectation of receiving dividends at some time in the future. However, if a corporation has a stated policy that it will not pay dividends, then interest on money borrowed to purchase these shares will not be tax deductible. Some corporations may not pay dividends because they prefer to reinvest earnings in the company, or repurchase their own shares, which would theoretically raise the market value of the shares. Therefore, the shareholders would have capital gains instead of dividends.
Pretty much ALL common shares have a “right to receive” dividends. There are rare exceptions. Those would not qualify.
CRA has not (to the best of my knowledge) EVER won a case denyiny interest costs, where dividends could be paid but were not. (As I said, there are rare exceptions, generally from corporate reorgs.)
In the normal course of life, yes, they are deductible, whether she received interest or not, capital gains or not.
Interest costs are limited to CURRENT YEAR costs again, with some exceptions (vacant land - it’s capitalized to the cost of the land).
