*The Commerce Journal>>>Canada Taxes

I pay taxes on interest I make, but can't deduct on interest that I pay?

Assume for a moment that I have cash in a bank account AND I owe money on a loan, but choose not to use the cash to pay down my debt in full.

If I make income on interest from a bank account, I pay tax on the income. But, If I also paid interest charges on a loan, would I be able to deduct? Why not??

The interest on the bank account is income, just like money you earned at work.

The loan interest is part of your personal spending choices. You had the use of the money, you chose to pay interest to get that money earlier than you'd otherwise have had it. Your choice, and it's no different than money you spend on your food or your entertainment. It's a personal expense, not something you get to use to reduce your taxes. Why should I have to pay more so you could borrow or live above your income?

It depends what the reason for the loan is. If the loan was made so that you could invest in that interest bearing account you're talking about, then yes, you can deduct it. If it was for you to start a business, same thing. Basically, the loan has to be for you to earn income from a business or property.

Because the government takes in more tax money when they DON'T let you deduct for the interest that you pay.

Maybe think about it this way:
You earn a income, it is taxed. You take your taxed money to the 7-11 and buy a coffee and a magazine, the person working pays tax on their income to serve you and you pay tax on the coffee and magazine. The people that made the magazine were taxed on their income (from the editor to the delivery guy), and basically all the supplies they bought to make the magazine were taxed (From office supplies to gasoline). Then 7-11 paid the tax to buy the magazine which you again paid. The coffee cup and coffee cream were income taxed and gst'd and you paid gst again. Your magazine and coffee transaction could have been taxed around 80 times before you got it. You can't claim any of that tax back.
The bank pays tax on income earned from your loan.
So, the point is, start a government.

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