Contact: Judy Culford

December, 2002

Phone: (519) 663-2252

Can't Lose" Leveraging Strategy Very Timely

Investment Swaps Before Year End Save Taxes Two Ways

While leveraging, or borrowing to invest, is a controversial strategy that has hurt most investors during this bear market, there is one leveraging strategy that even the critics can't argue against and can produce double tax savings if acted on before the end of the year.

"Those who have personal debts and any unregistered investments can benefit several ways by doing a simple ‘Investment Swap', says Talbot Stevens, a financial educator and author of "Dispelling the Myths of Borrowing to Invest". Investors can cash in some investments to pay down their debts and then borrow back and invest the same amount. This will not change their net worth, but the Investment Swap reduces taxes because whenever you borrow to invest outside of an RRSP, the interest expense is generally tax deductible. As a bonus, the interest rate charged for investment loans is generally lower than most personal debts, resulting in additional savings.

Down Markets and Drop in Capital Gains Taxes Creates Opportunity

"Two events make this strategy more valuable and timely than normal," cites Stevens. "While any unregistered investments can work, it is better to cash in investments like GICs that do not trigger additional taxes." With most stock markets down over the last few years, many investors will also be able to do an investment swap with equity funds or stocks without triggering capital gains taxes.

If you have equity investments that are worth less than you paid for them, and most of us do, selling before year end creates a capital loss that can be applied against capital gains that have been paid in any of the previous three years, or carried forward indefinitely. The additional benefit for crystallizing capital losses this year is that you can apply the loss back to 1999 when 75% of capital gains were taxed, instead of the 50% now taxable.

Talbot Stevens, who educates investors to dispel the myths of borrowing to invest, says that there's never been a better time to take advantage of this uncontroversial leveraging strategy. Implementing an Investment Swap before Christmas can result in additional gifts under the tree:

Stevens cautions that, as with most strategies, make sure talk to your accountant or financial planner to do this properly. To trigger a loss for 2003, your transaction must be settled before December 31, which means selling at least three business days before. You also can't immediately buy back the exact same equity investment or the superficial loss rules will deny the capital loss, so buy something similar instead.

-- END --

Talbot Stevens is a financial educator, industry consultant, and author of "Financial Freedom Without Sacrifice" and "Dispelling the Myths of Borrowing to Invest". For other story ideas, visit the Free Resources menu of For more information, contact Judy Culford, Communications Director for Talbot Stevens, by calling (519) 663-2252, or emailing