Is the Interest on Your Mortgage Tax Deductible in Canada?

Many borrowers wonder whether or not the interest they pay on their mortgage is tax deductible. Meaning, is there a way for them to save money on their taxes by writing off expenses related to their mortgage like interest paid as just one example. 

In the United States of America, citizens are able to claim the interest they pay on their mortgages against their taxes and as a result, experience tax advantages in making their mortgage payment.

Unfortunately, in Canada taxes don't not quite work this way. Instead, if Canadians sell their principal residence they automatically become exempt from paying Capital Gains Tax.  This saves them a tremendous amount of money as they don’t have to claim their sale profits as income and can sell tax-free. 

The story of how interest on your home’s mortgage got banned from becoming a tax write-off goes back to 2001 when a case was brought before the Supreme Court of Canada. The court’s decision in Singleton v. The Queen (“Singleton”) changed the way Canadians are able to organize their finances, particularly mortgage debt. 

As a result of the decision, while mortgages taken out for investment and business purposes can be tax deductible, mortgages for personal purchases are not. What the ruling essentially means is that as a taxpayer, you can organize your finances by claiming interest paid on your mortgage when purchasing personal assets such as a home ONLY if those mortgages (or secured lines of credit) are used to earn revenue or income from another property or business venture. 

A very common example of this is to borrow to invest against your principal residence. If you use your home’s equity to purchase an investment property, then you can claim the interest you pay against your taxes.

Are mortgages on rental properties tax deductible?

If you borrow against your principal residence to purchase an investment or rental property, then you can deduct the mortgage interest on the portion you borrowed to purchase the investment. If you borrow a portion of your house for investment, for example, making the basement into a legal apartment which generates income you could also be entitled to claim your mortgage interest as an expense. 

Should I convert my mortgage into being tax deductible?

In conclusion, in general, your mortgage payments against your principal residence for personal purchases are not tax deductible. Only under special circumstances could you pursue mortgage interest deduction from your taxes and possibly obtain a tax refund in some cases. 

However, if you are thinking of changing your home’s primary use to mixed use as in you make a part of it revenue generating with the ability to consistently earn income, you could start deducting interest on your tax return. 

This could also be a successful avenue to pursue to pay your mortgage principal down faster no matter what interest rate you have.
 
Therefore, no matter what, and before you do anything whether it’s finishing your basement or purchasing a rental property using your home’s equity, it’s important to check with the Canada Revenue Agency to be sure about what you can and cannot do when it comes to your mortgage loans. The rules may change depending on tax year. 

Should you require any additional information, please do not hesitate to contact my office at (647) 773-4849. We would be pleased to help you and answer any questions you may have.

Sarah A. Colucci
Mortgage Agent, Lic. M14000929
Mortgage Edge, Broker 10680 

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