To clarify my understanding of margin loans in Canada: the interest expense incurred while trading on margin is deductible, as long as the stock pays dividends, right? Also, if it is deductible, would the amount be deductible against all income, or is it limited to being deductible only against the capital gains and dividends that the stock generates?
For example, let's say I borrow 100k at a 10% annual interest rate from my brokerage firm to purchase a certain stock. Over the course of 1 year, the stock generates 1k in dividends. And when I eventually sell the stock, I receive 105k. Unfortunately, both the dividend and capital gain (1k + 5k) amount to less than the 10k I will need to pay in interest to my brokerage firm.
In this example, would I be able to deduct the full 10k of interest expense against all of my income (including employment), or is the maximum amount I can deduct just 6k (from the dividend and capital gain of the stock)?
P.S. In reality, the interest wouldn't just remain at 10k; it would compound and likely be something closer to 10.1k. I heard that compounding interest is also deductible, is this true?