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Can Canadians Deduct Mortgage interest from their Taxes?

Can Canadians Deduct Mortgage Interest From Their Taxes?

The short answer for most Canadian homeowners is no. While our American neighbours get to claim interest on their mortgages as a tax deduction, the Canadian tax system simply does not allow it. There are exceptions, however, so read on to learn more.

How Come Mortgage Interest Isn’t Deductible In Canada?

In 2009, the Canadian Supreme Court tried a case involving two homeowners who deducted over $100,000 in mortgage interest on their taxes. The Minister of National Revenue reported the deductions as illegal tax avoidance. The Supreme Court sided with the minister and declared that mortgage interest payments are not tax deductible unless a home is generating rental income.

Can I Claim Mortgage Interest If I Run A Business Out Of My Home?

If you run a business out of your home, you can deduct some work-related expenses. This may include electricity, heating, phone, and internet, but unfortunately, you still cannot deduct mortgage interest.

If your home business becomes large enough (perhaps you add equipment or hire employees), you can contact the Canada Revenue Agency (CRA) and find out if your home qualifies as a business. If it does qualify, you may be able to claim expenses such as supplies, property taxes, and condo fees.

What If My Home Produces Rental Income?

This is one of the only ways for Canadians to get a mortgage interest tax deduction. If your house or condo produces rental income, it is considered an investment property. If, say, you rent out one or more of your rooms in your home and earn income from a tenant or tenants, your expenses may count as rental-related and possibly be claimable on your taxes. If your property does not make revenue from a business or rent, you cannot claim any tax deductions.

Is It Smart To Try To Make My Mortgage Interest Tax Deductible?

This is a question that can only be answered on a case by case basis. Just like any other investment choice, making your mortgage interest tax deductible by turning your home into an investment property comes with risk. Your rental income may not cover your mortgage and you may never get back what you’ve invested in your property. It could take years until you see a return, and if you decide to sell your home, you will have to pay taxes on whatever profit you make. If this is a route you’re interested in, discuss it with a financial advisor or tax expert first.

 

Canadians Do Enjoy Tax-Free Capital Gains On Their Primary Residence

While Americans are luckier with mortgage interest deduction policy, it’s not all bad for us Canadians. If you ever sell your principal residence, and there’s a profit from the sale (which is very common in Canadian real estate), you don’t pay taxes on that profit. This is why we caution you from converting your home to an income property – if you sell an income property at a profit, you will incur taxes.

If you need more information about mortgages, debt consolidation, renewals, purchases or general mortgage advice – send us a message on our site or call Lev Keselman at 604-764-9165 or Alex Shein at 604-725-0675 .