Facing a dilemma

Question: Which would be better? To take $4,000 cash out of a BMO Dividend Fund to finish paying off the renovations or use a cash advance at 6.9% and pay it off over the next three months?

I am concerned about the overall long term loss of investment if I take from the Dividend Fund. The interest won’t be too bad and I will be paying it down at a rate of at least $500-$600 a month or better, so it’s very short term.

The BMO fund is just starting to recover and I am concerned at taking $4,000 out. I would pay that back, though, just the same as if it were a cash advance on the renovation. – P.C.


First, consider the tax implications of a withdrawal from the Dividend Fund. If the units are in an RRSP, you will be hit with tax on any withdrawal at your marginal rate. If they are not, calculate whether you would have a taxable capital gain if you cash in now or, alternatively, a deductible capital loss. If the latter, do you have any capital gains against which you can deduct a loss, remembering you can go back three years. Your decision may be easier once the tax consequences are assessed.

If there are no significant tax advantag or liabilities, then the decision comes down to two factors:

1) Where you believe markets are going. You know you are going to have to pay off the loan at an annualized interest rate of 6.9%. That’s an out-of-pocket cost. If you believe the Dividend Fund will provide a better return over the period, stay with it. That’s not an easy call, and there are no guarantees.

2) Your comfort level. If there is no tax advantage and you don’t feel confident one way or another about the short-term returns from the fund, then follow your instinct and choose the course you feel most comfortable with. Just resolve not to second-guess yourself later.

– G.P.