Making your home mortgage tax-deductible in Canada explained
Allan Madan, CPA, CA
Want to know how to make your mortgage interest tax deductible? Find out out how to write-off your mortgage interest expenses for tax saving purposes!
Follow These 5 Steps
Step 1:
Sell Your Non-Registered Investments. Non registered investments are funds invested outside of a TFSA or RRSP, including mutual funds, exchange-traded-funds, shares of public companies, bonds, GIC’s and so on.
Step 2:
Use the cash collected from selling your investments to pay-down your mortgage.
Step 3:
Obtain a Home Equity Line of Credit for the same amount that you reduced your mortgage by in Step 2.
Step 4:
Borrow the full amount available on your Home Equity Line of Credit and use these borrowings to invest in the same non registered investments that you sold in Step 1.
Step 5:
Deduct the interest paid on your Home Equity Line of Credit on your personal tax return. The reason this is tax deductible is because the Income Tax Rules stipulate that interest paid on money borrowed to purchase income producing investments can be deducted for tax purposes.
Let’s look at an example. Assume that you own a home with a mortgage of $400,000, carrying a 3% rate of interest. You also own non-registered investments of $100,000 with a rate of return of 7% per year. Now suppose that you sell all of your investments for $100,000 and use that money to pay down your mortgage by $100,000. Your bank has agreed to provide you with a Home Equity Line of Credit for $100,000, which you use to repurchase the non registered investments that you just sold. As a result of these transactions, the interest paid for 3% on your $100,000 Home Equity Line of Credit is tax-deductible.
So Here’s the Tip:
Follow the 5 steps that we talked about today in order to make your mortgage tax deductible.
Disclaimer
The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.
ABOUT THE AUTHOR
ALLAN MADAN
CPA, CA
Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.
