If you’re a homeowner in Canada, you might be wondering if the interest you pay on your mortgage can be claimed as a tax deduction. While the answer isn’t always straightforward, there are situations where mortgage interest is tax deductible — especially if your home generates income.
In this guide, we’ll break down when and how you can deduct mortgage interest, how to calculate it, and what restrictions apply.

Understanding Mortgage Interest Tax Deductions

In Canada, mortgage interest on your primary residence is generally not tax deductible. However, if your property is used to generate income — such as a full rental, partial rental (like a basement suite), or a home office for your business — then a portion or all of the interest may be deductible.
The CRA (Canada Revenue Agency) only allows deductions on mortgage interest tied to income-generating use of a property. That means if you’re earning rental income or using part of your home for business, you may be eligible.

📊 Which Mortgage Uses Are Tax Deductible in Canada?

In Canada, mortgage interest is generally **not tax deductible** for your primary residence—but there are a few exceptions. Here’s a breakdown of what qualifies and what doesn’t:

Mortgage Use	Tax Deductible?	Details
🏡 Primary residence	❌ No	Mortgage interest on your personal home is not deductible under CRA rules.
🏘️ Rental property	✅ Yes	You can deduct interest on money borrowed to purchase or improve a rental property.
🏗️ Renovating a rental unit	✅ Yes	Interest is deductible if the funds were used for revenue-generating property.
🏦 Borrowing to invest	✅ Yes	If you refinance and use the funds for income-producing investments, the interest may be deductible.
🔄 The Smith Manoeuvre	✅ Yes (if structured correctly)	This strategy converts non-deductible mortgage interest into deductible interest over time.
🏫 Vacation or second home	❌ No	Unless the property earns rental income, interest is not deductible.

📌 Tip: Always keep documentation showing how borrowed funds were used. The CRA only allows deductions when the money directly supports income generation.

How to Claim Mortgage Interest on Your Taxes

To claim eligible interest, you’ll need to complete specific forms:

For rental income, use the T776: Statement of Real Estate Rentals
For business use, file the T2125: Statement of Business or Professional Activities

Keep detailed records of your expenses, mortgage statements, and how much of your property is used for income. If you’re unsure, working with a tax advisor is a good idea.

How Much Can You Deduct?

1. 100% Deductible

If your entire property is a rental (or investment property), 100% of your mortgage interest is deductible against rental income.

2. Partial Deduction for Rental Portion

If you rent out a portion of your home (e.g., basement apartment), only the corresponding share of your mortgage interest is deductible. For example, if the rented area makes up 25% of the home’s square footage, you can deduct 25% of the annual interest.

3. Short-Term Rentals

For seasonal rentals (e.g., Airbnb), you can only deduct mortgage interest for the time the property was rented. Renting 9 months of the year? You can deduct 75% of the interest.

4. Home Office or Business Use

Use a room in your house for business? You can deduct interest based on the size of the space and how often it’s used. For example, if your home office is 10% of your home’s square footage and used 260 days/year, the deductible portion is:

10% x (260/365) = 7.12% of annual mortgage interest

🏠 Deduction Example – Mortgage Interest for Home Office or Rental Space

If you use part of your home for business or rent it out, you may deduct a portion of your mortgage interest. Here’s a simplified example:

📐 Property Setup

Home value: $600,000
Mortgage balance: $450,000
Annual mortgage interest: $18,000
Home office or rental space: 20% of total area

🧮 Deductible Calculation

Eligible deduction = Interest × % of space used for income

= $18,000 × 20% = $3,600 deductible

📌 Tip: You can also deduct a portion of property taxes, utilities, and maintenance. Keep receipts and calculate based on actual use.

What About Loan Fees?

If you took out a mortgage to buy or renovate a rental property, some loan-related fees are also deductible, including:

Mortgage application and appraisal fees
Legal fees tied to financing
Mortgage insurance or guarantee fees

You can deduct 20% of these fees each year over 5 years.

Important Restrictions

If your home is used only as your residence, you can’t claim interest.
You can only deduct the portion of interest tied to the income-generating part of the property.
Using a rental property as collateral for a personal-use mortgage makes the interest non-deductible.

When in doubt, consult CRA guidelines or a licensed tax professional.

Frequently Asked Questions

What home expenses are tax deductible in Canada? For rental or business use, you can deduct interest, property taxes, insurance, utilities, and repair costs.
Can I deduct interest on my rental property mortgage? Yes, if the property is fully rented, you can deduct 100% of the interest.
When can I deduct 100% of my mortgage interest? Only when your property is entirely used to earn income, like a full-time rental.
What if I rent out a room in my house? You can deduct a portion of your interest, based on how much space the room occupies and how long it was rented.

Final Thoughts

While mortgage interest isn’t deductible for most homeowners, there are real tax savings if part (or all) of your property is used to earn income. The key is tracking usage, keeping good records, and calculating your eligible deductions accurately.
Most Canadians can’t deduct mortgage interest — but in certain cases (like investment properties or the Smith Manoeuvre), it’s possible. Our experts can help you understand if you qualify — and how to make the most of it. 📞 Get Tax-Smart Mortgage Advice Today

Is My Mortgage Interest Tax Deductible?

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Understanding Mortgage Interest Tax Deductions

📊 Which Mortgage Uses Are Tax Deductible in Canada?

How to Claim Mortgage Interest on Your Taxes