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After Tax Cost of Debt Formula:
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The after-tax cost of debt on a margin loan represents the effective interest rate you pay after accounting for tax deductions on interest expenses in Canada. It's a crucial metric for investors using margin accounts to understand their true borrowing costs.
The calculator uses the following formula:
Where:
Explanation: The formula accounts for the tax-deductible nature of investment interest expenses in Canada, which reduces your effective borrowing cost.
Details: Calculating the after-tax cost of margin debt helps investors make informed decisions about leverage and compare the true cost of borrowing across different financing options.
Tips: Enter your margin interest rate and your marginal tax rate in Canada as percentages. Both values must be between 0 and 100.
Q1: Is margin interest tax deductible in Canada?
A: Yes, interest on money borrowed to invest in taxable accounts is generally tax deductible in Canada, which reduces your effective borrowing cost.
Q2: What's a typical margin rate in Canada?
A: Margin rates vary by broker but typically range from prime + 0.5% to prime + 3%, depending on the amount borrowed and the broker.
Q3: How do I know my marginal tax rate?
A: Your marginal tax rate depends on your province and income level. You can find Canadian tax brackets on the CRA website or consult a tax professional.
Q4: Does this apply to RRSP or TFSA margin accounts?
A: No, interest on loans for registered accounts (RRSP/TFSA) is not tax deductible in Canada. This calculator applies only to taxable margin accounts.
Q5: Are there other costs to consider with margin loans?
A: Yes, consider potential margin calls, the risk of amplified losses, and any account maintenance fees when evaluating margin borrowing.