Lu Tang has finally found her “dream” house and is ready to buy. She will move in right away and plans to make this her home for many, many years. After making a $160,000 down payment, she will need to borrow $600,000 to close the deal. Her investment advisor, Baldev, suggests that rather than seeking a conventional mortgage (currently at 3-1/2%), she should borrow the funds from her brokerage firm using the value of her portfolio as collateral. This alternative is called a margin loan which currently has a 3% rate. Lu Tang is really interested because the interest rate is ½ percentage point lower. However, she wants to run this idea by you, her tax advisor, before making a decision.

a. What is your recommendation and why?

b. Support your recommendation with primary sources.

Answer rating: 100% (QA)

a According to the provisions of Income Tax Act it disallows the expenditure inc... View the full answer