Patrick, a 65-year-old retired executive in Ontario, owns a Universal Life policy with accumulated cash value. He decides to take a policy loan of $50,000. Under what circumstance, if any, is the interest expense on this policy loan tax-deductible for Patrick under Canadian tax law?

Question: Patrick, a 65-year-old retired executive in Ontario, owns a Universal Life policy with accumulated cash value. He decides to take a policy loan of $50,000. Under what circumstance, if any, is the interest expense on this policy loan tax-deductible for Patrick under Canadian tax law?

Answer options:

• If Patrick uses the $50,000 for personal health expenses. ✅ If Patrick uses the $50,000 to purchase shares in a publicly traded company with the expectation of earning income.
• Interest is never tax-deductible on a policy loan.
• If Patrick uses the $50,000 to pay off his personal mortgage.

Correct answer: If Patrick uses the $50,000 to purchase shares in a publicly traded company with the expectation of earning income.

Explanation: Interest on a policy loan may be tax-deductible if the borrowed funds are used to earn income from a business or property, such as investing in income-producing assets, as per the Income Tax Act.