Are Mortgages Tax Deductible in Canada?

If you’re a homeowner—or planning to become one—you might be wondering if the interest you pay on your mortgage can help lower your tax bill. After all, in the U.S., homeowners can deduct mortgage interest for their primary residence, which often leads to significant tax savings. But what about here in Canada? The Short Answer Mortgage Interest on Your Home Isn’t Deductible

In Canada, the mortgage interest on your principal residence (the home you live in) is not tax-deductible. This often surprises first-time buyers, especially if they’ve heard about mortgage interest deductions being available south of the border.

The reason for this boils down to how Canada’s tax system is structured. Here’s the trade-off: while you can’t deduct mortgage interest, you won’t have to pay capital gains tax when you sell your home, as long as it’s your principal residence. This exemption can save homeowners tens of thousands of dollars—or more—when selling in a hot market like Niagara or St. Catharines.

When Mortgage Interest Is Deductible in Canada

Although you can’t claim deductions on your principal residence, there are a few scenarios where mortgage interest becomes tax-deductible:

1. Rental Properties

If you own a property that generates rental income, you can deduct the mortgage interest as part of your expenses. This can be a huge benefit for landlords because it helps offset the rental income you earn. For example:

• If you rent out a house in St. Catharines, you can claim mortgage interest, property taxes, insurance, and maintenance costs when filing your taxes.
• Learn more about how rental property deductions work on the Canada Revenue Agency (CRA) website.

2. Home Offices

Are you self-employed or running a small business from home? If so, you might be able to deduct a portion of your mortgage interest. The CRA allows deductions for the portion of your home that’s used exclusively for business purposes. For example:

• If 10% of your home is dedicated to your office, you can deduct 10% of your mortgage interest.
• This deduction only applies if the space is used exclusively for work, not for personal activities.

3. The Smith Manoeuvre

The Smith Manoeuvre is a Canadian strategy for making mortgage interest tax-deductible. Here’s how it works:

• You convert your mortgage into a tax-deductible investment loan by reborrowing your home equity to invest in income-generating assets, such as stocks or mutual funds.
• Since the loan is for investment purposes, the interest on that loan becomes deductible.

This strategy can be risky, as it relies on the performance of your investments. Speak to a financial advisor before trying this approach. You can find detailed guidance on the Smith Manoeuvre in this CBC article on tax-efficient investing.

Other Tax Benefits for Canadian Homeowners

Even though mortgage interest isn’t deductible for most Canadians, there are other tax breaks and credits that can help homeowners:

1. First-Time Home Buyers’ Tax Credit

If you’re a first-time buyer, you could be eligible for a tax credit worth $750. This credit helps offset some of the costs of purchasing your first home, such as legal fees or home inspections.

2. GST/HST New Housing Rebate

If you buy or build a new home, you might qualify for a rebate on a portion of the GST or HST paid. This applies to newly built homes, substantially renovated homes, or those bought from a builder.

3. Home Accessibility Tax Credit

For seniors or individuals with disabilities, this tax credit helps cover the cost of making a home more accessible. For example, if you need to install ramps or widen doorways, you may be able to claim up to $10,000 in expenses.

How Can You Save on Your Mortgage?

Even though you can’t claim mortgage interest as a deduction on your taxes, there are still ways to save money on your mortgage—and that starts with securing the best terms and rates. A mortgage broker can help you navigate the complex world of rates, terms, and lenders to find a solution tailored to your needs.

If you’re in Niagara or St. Catharines, check out Wilson Mortgage. Their team specialises in helping homeowners and first-time buyers secure competitive rates while simplifying the mortgage process. Whether you’re buying your first home, investing in a rental property, or considering refinancing, their expertise can save you time and money.

The Bottom Line

In Canada, the rules around mortgage interest and taxes are straightforward: you can’t deduct interest on your principal residence, but there are exceptions for rental properties, home offices, and investment strategies like the Smith Manoeuvre. Additionally, other homeowner tax credits and rebates can help offset the costs of buying and maintaining a home.

Still feeling unsure about your options? Whether you’re purchasing a home in Niagara or St. Catharines, or exploring how to structure your mortgage, a trusted mortgage broker can make all the difference. Visit Wilson Mortgage today to explore your options and take the next step towards smarter homeownership.