Glossary
Definitions of the key terms used in Canadian leveraged investing and interest deductibility tracking. Each term links to the Learn page where it's explained in context.
Adjusted Cost Base (ACB)
The total cost of a security for tax purposes, including purchase price and adjustments for return of capital. Canada requires averaging across all units of the same security.
Average Daily Balance Method
The standard financial method used to allocate interest across a period where balances change. Each day's balance is weighted by its duration, then the total interest is distributed proportionally. Banks use this same approach for deposit accounts and credit lines. See How interest is time-weighted.
Borrowed Cash
Cash in your brokerage that came from borrowed funds and hasn't been invested yet.
Borrowed Cost Base
The portion of a security's cost that was funded with borrowed money. Determines what portion of sale proceeds affects your debt ratio. See Selling holdings.
Capitalized Deductible Interest
Principal created when you borrow to pay deductible interest charges. Interest on this principal is itself deductible. See Interest capitalization.
Capitalized Non-Deductible Interest
Principal created when you borrow to pay non-deductible interest charges. Interest on this principal remains non-deductible. Tracked within the non-deductible principal balance (not as a separate sub-balance).
Deductible Principal
Borrowed money currently tied to investments. Interest charged on this portion is tax-deductible. Includes invested principal and capitalized deductible interest.
Income Tax Folio S3-F6-C1
The CRA's comprehensive guidance on interest deductibility. The primary authority for the rules this app implements. Read the full folio on canada.ca. See CRA rules applied.
Interest Capitalization
Paying outstanding interest by borrowing more from the same credit account. Common in Smith Manoeuvre strategies. Converts charged interest to paid interest while keeping debt invested. See Interest capitalization.
Invested Principal
Borrowed funds that have been deployed into securities. Interest charged on this portion is deductible because the funds are traceable to an investment purpose. See how balances are tracked.
Non-Deductible Principal
Borrowed money NOT tied to income-producing investments. Tracked as a single balance that includes idle borrowed cash, personal borrowing, and capitalized non-deductible interest. The app does not break this down further. Interest on this portion is not deductible.
Outstanding Interest
Interest charged by the lender but not yet paid. Not deductible until paid (cash-basis timing). Split into outstanding eligible and outstanding non-eligible based on the balance composition when charged. See how balances are tracked.
Personal Cash
Cash in your brokerage that is yours — dividends, gains, deposits. Not tied to borrowed funds and doesn't affect interest deductibility.
Personal Cost Base
The portion of a security's cost funded with your own money. Sale proceeds from this portion are yours to use freely.
Personal-Use Borrowing
Amounts borrowed for non-investment purposes. These are included in non-deductible principal. Interest on this portion is not deductible. See Mixed HELOC use.
Proportional Repayment
CRA rule (¶1.43): when you pay down a mixed credit balance, the payment is allocated proportionally between deductible and non-deductible portions. You cannot target the personal portion first. See Mixed HELOC use.
Return of Capital (RoC)
A distribution from a security that is not income — it's a return of your invested principal. Reduces your cost basis and can change your deductible debt ratio. See Return of Capital.
Smith Manoeuvre
A Canadian strategy for converting non-deductible mortgage interest into deductible investment loan interest, typically using a readvanceable HELOC.
Tracing Principle
The CRA's requirement that interest deductibility follows the current use of borrowed funds, not the original intent. You must trace each borrowed dollar to its use. See How interest deductibility works.