Selling holdings

When you sell securities that were purchased with borrowed money, the proceeds need to be split between borrowed and personal capital. This split determines how much of your debt remains traceable to investments — and therefore how much of your interest stays deductible.

The basic principle

Sale proceeds reverse the investment process. Borrowed funds that were “invested” return as “uninvested” borrowed cash. The split follows the original funding proportions of the position, with adjustments for gains or losses.

In Canada, securities are pooled for adjusted cost base (ACB) purposes. If you bought the same security multiple times with different borrowed/personal ratios, the app uses the blended ratio across your entire position.

How gains and losses change the split

Sold at cost: The proceeds split matches the original funding split. If the position was 70% borrowed, 70% of proceeds go to borrowed cash.

Sold at a gain: The cost recovery portion follows the original split. The gain goes entirely to personal cash — gains are income, not return of borrowed capital.

Sold at a loss: The loss reduces both the borrowed and personal recovery proportionally. You still owe your full credit balance — the loss reduced what you recovered, not what you owe. Critically, the “lost” borrowed capital remains deductible debt. The loan doesn't disappear because the investment performed poorly.

Worked example: selling at a gain

You hold 100 shares of VFV with a $2,500 cost base: $2,000 borrowed (80%), $500 personal (20%). You sell all 100 shares for $3,000.

• Cost base removed: $2,500
• Gain: $500 ($3,000 − $2,500)
• Borrowed cash receives: $2,000 (the borrowed cost returned)
• Personal cash receives: $1,000 ($500 personal cost + $500 gain)

The $500 gain is yours — it goes to personal cash and doesn't affect the borrowed/invested tracking.

Here's how this looks in the app's event detail view:

Worked example: selling at a loss

Same position, but you sell for $2,000 instead.

• Cost base removed: $2,500
• Loss: $500 ($2,000 − $2,500)
• Proceeds split proportionally: borrowed cash gets $1,600 (80%), personal cash gets $400 (20%)

Your borrowed cost was $2,000, but you only recovered $1,600. The $400 difference was lost to the investment — but the debt remains. That $400 of borrowed, invested, and lost capital is still deductible debt.

Here's the balance impact for the loss scenario:

Partial sales

When you sell part of a position, a proportional slice of the cost base is removed. Selling 50 of 200 shares (25%) removes 25% of total cost, 25% of borrowed cost, and 25% of personal cost. The remaining shares keep the same borrowed/personal ratio.

What to do with returned borrowed cash

After a sale, borrowed capital sits as uninvested cash in your brokerage. You have three choices:

• Reinvest it — moves it back to invested principal, maintaining deductibility
• Leave it as cash — the debt moves to non-deductible principal at the time of sale. Until you reinvest, interest on this portion is not deductible.
• Withdraw for personal use — the cash leaves your brokerage but the debt was already non-deductible, so credit-side balances don't change

CRA basis

The allocation follows from the tracing rules in Income Tax Folio S3-F6-C1. When borrowed money is invested and later returned through a sale, the return of capital follows the same tracing as the original investment. Gains are income, not return of borrowed capital. Losses reduce what can be traced to investments, but the underlying debt remains.

Related topics

• Return of Capital — distributions that also return invested capital
• Mixed HELOC use — what happens when personal spending is on the same credit line
• How interest is time-weighted — how the deductible proportion is calculated