Should I take a loan to max out my TFSA.
One rule decides most of this, and it is not the yield on the fund. Interest on money borrowed to put into a TFSA is not deductible — so the account that removes all the tax also removes the only relief you get when the trade goes against you.
The rule that moves the break-even
Interest is deductible when the borrowed money is used to earn taxable income. Income inside a TFSA is not taxable, so the deduction is not available — and the Income Tax Act does not leave it to the general test, it bars it outright. Subsection 18(11) denies the deduction for interest on money borrowed to contribute to a TFSA, an RRSP, an RESP or an RDSP.
This is the whole difference, and it is invisible if you compare a loan rate to a distribution yield. Inside a TFSA the break-even is the full loan rate. Outside it, the break-even is the loan rate less your marginal tax on it.
| Borrowing at | Rate | Costs you, in a TFSA | Costs you, non-registered |
|---|---|---|---|
| A HELOC quoted at prime + 1 | 5.45% | 5.45% | 3.83% |
| Unsecured line of credit | 7.82% | 7.82% | 5.50% |
Prime was 4.45% as at 2026-08-07; a secured line is normally quoted at prime plus a spread, taken as one point here. The Bank of Canada also publishes an average of 4.04% actually being charged on secured lines, but that is an average across balances already outstanding and lags what a new borrower is offered — the lower figure is not the one to plan against. Unsecured is the Bank's own series. Non-registered column assumes a 29.65% marginal rate — Ontario at $90,000, 2026 — and that the interest qualifies. Where these rates come from · your province.
So the honest version of the question is not "does the yield beat the loan". It is: do I expect this to return more than 5.45% a year, after fees, for as long as the loan is outstanding? The median fund listed here yields 9.94%, which looks like plenty of room — until you remember that a yield is not a return. What a yield turns into.
The comparison nobody runs
Everyone compares borrowing to not borrowing. The more useful comparison is borrowing into a TFSA against borrowing into a taxable account, because it exposes what the shelter is actually doing.
- When it goes well, the TFSA wins. The gain is untaxed, and giving up a deduction on the interest costs less than the tax on the gain would have.
- When it goes badly, the TFSA loses by more. In a taxable account the interest is deductible whether or not the investment worked, and a realised loss can be set against gains elsewhere. Inside a TFSA you get neither: you pay the full interest and the loss is simply gone.
Leverage inside a TFSA is therefore not a better version of the same bet. It is a higher-variance version — more upside, and no cushion at all underneath. That is a reasonable trade to want. It is not the trade most people think they are making when they are told a TFSA is the tax-efficient place to borrow into.
A loan payment is contractual. A distribution is not
The plan usually assumes the distribution covers the interest. The two obligations are not the same kind of thing: the lender's payment is fixed by agreement, and the fund's payment is declared each cycle and can be cut without notice.
Of the 22 funds covered here, 16 have reduced their distribution at least once. UMAX has done it 22 times since 2023-06-15. Every change to UMAX's rate .
A cut does not pause the loan. It converts a position that was paying for itself into one you are funding out of salary, at the exact moment the reason for the cut is likely to have hit the unit price as well.
A loss inside a TFSA is permanent
This is the part that surprises people. Sell at a loss in a non-registered account and the loss is an asset — it offsets capital gains this year, the three years before, or any year after. Sell at a loss inside a TFSA and it offsets nothing. The contribution room you used is not returned either: room is measured by what you put in, not by what it is worth now.
Unit prices do fall. 7 of the 22 funds here are below their starting price on a price-only basis — HHL by -24.3% since 2014-12-18. Distributions are why the total picture differs, and both figures are on the fund page.
Borrow to buy that, and the loss is amplified by the loan while the deduction that would normally soften it does not exist.
Repaying the loan can cost you the room
If the position turns and you want out, selling inside the TFSA and withdrawing the cash to repay the lender does not restore your position. A withdrawal comes back as room on 1 January of the following year — not immediately. Re-contributing it in the same year is an over-contribution, penalised at 1% per month of the excess for every month it stays there.
Someone eligible every year since 2009 has $109,000 of cumulative room as at 2026, of which $7,000 is this year's. Room used badly once is not replaced. Work out what you actually have.
The rate is not the rate you signed at
Lines of credit float. A HELOC is quoted as prime plus a spread, so the payment moves whenever prime moves — and prime moves more than people plan for.
Prime was 2.45% in 2020 and 7.20% by 2023. It has changed 19 times since 2022 and sits at 4.45% today. A loan taken at the bottom of that range would have nearly tripled in cost inside three years, while nothing about the fund it bought was obliged to follow. The whole history.
What would have to be true
Not a recommendation, and not a checklist to tick off until the answer is yes. These are simply the things that have to hold at once for the arithmetic to work out, and each of them is a place it breaks:
- The investment returns more than 5.45% a year on total return, not on yield, for the life of the loan.
- You can service the payment from income if the distribution is cut, without selling.
- You can carry the payment if prime rises several points, because it has before.
- You have room to use. Borrowing a round number and contributing more than you have is a 1% monthly penalty on the excess.
- You would accept the loss with no deduction, no capital loss to claim, and no return of the room.
If the case rests on the yield exceeding the loan rate, it has not accounted for any of the above. The spread is worth calculating properly rather than eyeballing — the same fund, the same rate and a different account can flip the sign. Run it against a real fund.
General information about how these rules work, not advice about your situation, and not a suggestion to borrow. Tax treatment depends on facts this site does not have. Confirm deductibility and contribution room with the CRA or an advisor before acting. Full disclaimer.
Model it before you borrow.
Put in a real rate, a real fund and the account you would hold it in. The calculator shows the spread after tax, and what the unit price did while you were collecting it.