Loaning money to parents for retirement home

My question is: Canadian-specific

QUESTION: My parents are looking at purchasing in the Okanagan.
They have a condo paid for in Abbotsford worth
approximately 220 000.     What they would like in the
Okanagan is out of their price range, and they don't want
to assume more debt..

I own a house in Abbotsford, worth approx. 440,000 with
300k in equity..

If I took an equity line to help them purchase their new
property could I make the interest and equity payments
tax deductible,  eg...100,000 equity loan at 550$ a
month/6k per year in payments..  Roughly what percent
could I expect as a tax return, I make 74 000 a year..?

Does this sound like a feasible option which would
accomodate their needs and allow them to purchase a
freehold property rather than a modular home....I think
this would help keep their equity and act as an investment
vehicle for me upon sale.. Am I correct....


david ingram replies:

An admirable deed but not tax deductible.

Interest on a capital asset, (vacant land, gold, non-dividend bearing stock, a summer cottage, your parent's house, etc. is NOT deductible on a year to year basis although it can sometimes be added to the ACB (adjusted Cost Base) of the asset for capital gains purposes. (not always - just sometimes - NEVER for gold, silver, summer cabin, etc - sometimes for vacant land).

If you had other investments like a mutual fund, etc, you could cash in the mutual fund, pay for the property in the Okanagan and then borrow money on your house to buy back the mutual fund and the interest would be deductible but interest on an investment in your parent's house just does not make it.

Goto and read the November 2001 newsletter in the top left hand corner for more info.  Buying and reading Fraser Smith's book, the Smith Manouvre wouold also help you understand the process.