Is Mortgage Interest Tax Deductible in Canada?
Generally no. Mortgage interest on the home you live in is not tax deductible in Canada, unlike in the United States, where owners can often claim it. Canadian rules ask a different question, which is what the borrowed money was used for.
The Canada Revenue Agency lets you deduct interest when the loan helps you earn income. A landlord can deduct the interest charge on money borrowed to buy or improve a rental property, as the CRA's Rental Income guide explains. The same logic applies to investing, where most interest paid on money borrowed to earn investment income can be claimed. If the only earnings an investment can produce are capital gains, the interest cannot be claimed.
A home you live in produces no income. That puts its mortgage interest in the same pile as other personal living costs, along with property tax and utilities. It is simply a cost of ownership, and it adds up. The monthly cost of owning a house in Toronto shows where interest sits next to everything else.
Owners do get a tax benefit of a different kind. Under the principal residence exemption, the gain when you sell your main home is generally not taxed, a point covered in capital gains tax when selling an Ontario home.
What you do with the money matters more than the mortgage itself. Borrow against your home's equity through a HELOC and invest the funds, and the interest on that portion may be deductible. Spend the same funds on a vacation or a new kitchen and none of it is. With mixed use, only the share that went to earning income counts, so the paper trail becomes important.
Related reading: How Much of a Down Payment Do You Need for a Rental Property in Canada?, What Is Home Equity and How Do You Calculate It in Canada? and What Is the First-Time Home Buyers' Tax Credit in Canada?.
