Overview
Mortgage interest on a primary residence is generally not tax-deductible in Canada. However, there are important exceptions for rental properties and for portions of a home used to generate income. Understanding when and how mortgage interest can be deducted is crucial for Canadian homeowners and investors.
Mortgage Interest Deductibility in Canada
Primary Residence
- Mortgage interest on your main home is not tax-deductible for most Canadians.
- The Canada Revenue Agency (CRA) considers mortgage interest a personal expense for principal residences, so it does not typically qualify for tax deductions.
Rental and Investment Properties
- Mortgage interest is fully tax-deductible if the property is used exclusively to generate rental income.
- This applies across all provinces and territories, including Ontario.
- You can claim this deduction on your tax return using forms like the T776 (Statement of Real Estate Rentals).
Mixed-Use Properties
- If you rent out a portion of your primary residence (e.g., a basement suite), you can deduct a proportional share of the mortgage interest and other expenses, based on the area rented versus total home size.
- Similarly, if part of your home is used for a business (such as a home office), a share of the mortgage interest may be deductible as a business expense.
Advanced Strategies
- Some homeowners employ strategies such as the Smith Manoeuvre—borrowing against home equity to invest in income-producing assets, making the interest on that borrowed amount tax-deductible. However, this requires careful planning and professional advice.
Key Rules for Deductibility
- Purpose of loan: The borrowed funds must be used to earn income from business or property (not for personal use).
- Income type: The income must be interest, dividends, rental, or business—not just capital gains.
- Legal obligation: You must have a legal requirement to pay the interest.
Provincial Variations
- The rules for mortgage interest deductibility are set federally and apply consistently across all provinces and territories.
- There may be minor variations in how deductions are claimed or reported, so always check for any provincial nuances.
Table: When Is Mortgage Interest Tax Deductible in Canada?
| Property Use Case | Mortgage Interest Deductible? | Notes |
|---|
| Primary residence (personal use) | No | Not deductible |
| Rental property (fully rented) | Yes | Fully deductible |
| Portion rented (e.g., suite/basement) | Partial | Proportional deduction |
| Home office/business use | Partial | Proportional deduction for business portion |
| Borrowing to invest (Smith Manoeuvre) | Yes | Only on funds used for income-generating investments |
Canadian Government Programs & Incentives
- The Home Buyers’ Plan and First-Time Home Buyer Incentive do not affect mortgage interest deductibility but can help with down payments and affordability.
- For personalized advice and to maximize deductions, consult a Canadian tax professional.
Major Canadian Bank Offerings
- Major banks do not offer tax-deductible mortgages for principal residences, as this is governed by tax law, not lender policy.
- Many banks offer lines of credit or re-advanceable mortgages that facilitate investment strategies like the Smith Manoeuvre.
Next Steps & Recommendations
- For property investors or those with rental suites: Keep detailed records of your expenses and claim eligible deductions on your tax return.
- For homeowners considering income-generating strategies: Consult with a mortgage and tax professional before restructuring debt.
- Use theratefinder to compare mortgage rates and find products suited to your property and investment goals. theratefinder offers a streamlined multi-step application process with access to competitive rates from top Canadian lenders. Start your personalized application at theratefinder.ca/onboarding.
Summary
In Canada, mortgage interest on a primary residence is not tax-deductible, but it is deductible for properties used to generate rental or business income. If you rent part of your home or use it for business, you can deduct a proportionate share. Complex strategies exist for making mortgage interest deductible on investments, but these require careful planning. For tailored advice, consult a professional and use theratefinder to optimize your mortgage strategy.