Leveraging: Borrowing to invest

Tax managed strategy 22

If you’re an investor who makes regular contributions to your non-registered investment accounts, there’s a strategy that may allow you to increase your net worth over the long term and make your regular contributions tax deductible.

Many types of investors make regular contributions to their non-registered investment accounts:

  • high-income earners who’ve already maximized their registered retirement savings plan (RRSP) contributions and are looking for additional ways to save for retirement
  • those who’ve just started to save for retirement and have a long investment horizon
  • anyone else who finds that regular contributions make sense for them.

If any of these sound like you, borrowing to invest may be of interest.1 This strategy involves taking out an investment loan and using your regular contributions to your non-registered investment account to pay the interest on the loan. The interest payments are generally tax deductible, effectively making your contributions deductible. At the same time, you now have the potential to significantly increase the value of your non-registered investment portfolio over the long term, as you have a large lump sum working for you right away that can take advantage of the benefits of compounding.

Using a leverage strategy with a segregated fund contract provides the additional potential benefit of creditor protection. This may be particularly attractive to professionals and business owners. Furthermore, if a beneficiary other than your estate is named, the death benefit will flow outside your estate and avoid the resulting fees and delays.

Here’s how it works

Step 1: Take out an investment loan.

Step 2: Apply the amount of the loan in a lump sum to purchase non-registered investments.

Step 3: Pay the loan interest with the regular cash flow you were contributing to your non-registered investments.

Step 4: The loan interest becomes a deduction on your tax return.2

As you can see, it’s a simple strategy—and it can make a big difference to your bottom line.

How borrowing to invest can work — an example

Liz is looking for ways to maximize the value of her non-registered investments and supplement her other retirement savings. She currently contributes $300 a month or $3,600 a year to her non-registered portfolio. Here’s how Liz’s strategy looks using this leverage strategy.


Annual non-registered contributions $3,600
Annual rate of return 6%
Loan interest 5%
Taxable portion of return 25%
Taxable rate on investment income 25%
Marginal tax rate 40%

For illustration purposes only

How Liz’s situation stacks up

The $300 that Liz can afford to contribute each month is now used to cover all borrowing expenses. Liz gains the benefits of having a lump sum ($120,000) invested immediately, earning compound returns, and the monthly contributions used to pay the interest expense being tax deductible.

What it looks like at year 10

At the end of 10 years, the after-tax value of the $120,000 leverage account (after the loan is repaid) is $80,666 (vs $53,409 that would be the after-tax value if Liz had simply invested the $300 a month each year). By using the borrowing to invest strategy, Liz has increased her net worth by $27,258. After taxes are paid on the annual taxable distributions in the leveraged account, the interest deductions over 10 years have reduced her taxes payable by $18,069.

Determining the amount of the loan

Liz’s regular non-registered contributions will carry an interest-only loan of $120,000, calculated as follows:

annual non-registered contributions ÷ assumed interest rate = amount of interest-only loan Liz can carry

1 – marginal tax rate

$3,600 ÷ 0.05 = $120,000 loan

1 – 0.4

Ideal candidates

Individuals who:

  • currently make regular contributions to their non-registered investment accounts
  • have a long-term investment horizon

It’s important to remember that this strategy may not be appropriate for someone with a low risk tolerance.

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  • adding a leverage loan, which may accelerate the investment growth of your non-registered assets
  • using your regular contributions to fund tax-deductible interest expenses on an investment loan.

Individuals who have non-registered investments and non-deductible debt (such as a mortgage or car loan) may have an opportunity to increase their tax savings. By selling their non-registered investments,3 using the proceeds to repay part or all of their existing loan, and taking out an investment loan to re-purchase their investments, they can convert their non-deductible debt to deductible debt.

Investment options with Manulife Investment Management

Mutual funds from Manulife Investment Management can help meet your specific financial needs throughout your life. Whether you’re just starting out, accumulating wealth, or nearing/in retirement, mutual funds offered by Manulife Investment Management can provide you with solutions to help build a portfolio that meets your needs.

Segregated fund contracts combine the growth potential offered by a broad range of investment funds with the unique wealth-protection features of an insurance contract. Through Manulife Investment Management segregated fund contracts, investors can help minimize their exposure to risk through income, death, and maturity guarantees; potential creditor-protection features; and estate-planning benefits—all from a single product or insurance contract.

Investment loans allow investors to make a large initial investment contribution and benefit from the potential for compound growth and interest deductibility. Manulife Bank loans are available for a variety of mutual fund accounts and segregated fund contracts, and offer attractive options such as 100% financing, no margin calls on market fluctuations,4 interest-only payments, and a one-step application process.

Borrowing to invest may only be appropriate for investors with higher risk tolerance. You should be fully aware of the risks and benefits associated with investment loans—since losses, as well as gains, may be magnified. Actual tax deductibility of loan interest depends on a number of factors, with the Income Tax Act (Canada) providing the framework for deductibility. Results for Quebec residents may differ due to the different interest deductibility rules. Consult your tax and legal advisor with respect to your particular circumstances. Consider any potential tax implications or fees on the sale prior to using such a strategy. 4  No margin calls on 100% loans and multiplier loans; however, if loan-to-value (LTV) exceeds 125%, then interest-only loans may be converted to a principal-plus-interest loan at the discretion of Manulife Bank. The no margin-call feature isn’t available on custom loans.


Borrowing to invest may be appropriate only for investors with a higher risk tolerance. You should be fully aware of the risks and benefits associated with investment loans since losses as well as gains may be magnified. Preferred candidates are those willing to invest for the long term and not averse to increased risk. The value of your investment will vary and is not guaranteed, however you must meet the loan and income tax obligations and repay the loan in full. Please ensure you read the terms of the loan agreement and the investment details for important information. Manulife Bank of Canada solely acts in the capacity of lender and loan administrator and does not provide investment advice of any nature to individuals or advisors. The dealer and advisor are responsible for determining the appropriateness of investments for their clients and informing them of the risks associated with borrowing to invest.

This communication is published by Manulife Investment Management.  Any commentaries and information contained in this communication are provided as a general source of information only and should not be considered personal investment, tax, accounting or legal advice and should not be relied upon in that regard. Professional advisors should be consulted prior to acting based on the information contained in this communication to ensure that any action taken with respect to this information is appropriate to their specific situation. Facts and data provided by Manulife Investment Management and other sources are believed to be reliable as at the date of publication.

Certain statements contained in this communication are based, in whole or in part, on information provided by third parties and Manulife Investment Management has taken reasonable steps to ensure their accuracy but can’t be held liable for such information being inaccurate. Market conditions may change which may impact the information contained in this document.

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MK2540E 09/23

Tax, Retirement & Estate Planning Services Team

Tax, Retirement & Estate Planning Services Team

Manulife Investment Management

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