Tax deductions can be an exciting topic for many Canadians. They are specific expenses that you incur during the course of the tax year and can deduct from your taxable income to reduce the amount of money you are required to pay in taxes.
When it comes to your mortgage, one of the most commonly applied tax deductions is used to write off a portion of your mortgage interest payments. However, not all Canadian homeowners qualify. In this section, we explore the requirements for making use of this little-known tax shield.
Please note that we are not qualified accountants or tax specialists and are not providing you with tax and accounting advice. Please review the information provided in this article with your tax and accounting specialist prior to utilizing any of the ideas that are presented here.
In Canada, there are two scenarios in which you can write-off your mortgage interest payments from a tax perspective. The property must meet one of the following criteria:
Fortunately for Canadian landlords, mortgage interest is not the only expense that is tax-deductible. Some other expenses related to the purchase or renovation of the property can provide you with tax benefits. This might include:
When deducting your mortgage interest, it is important that you follow the rules and procedures set out by the Canadian government to ensure you qualify for all your earnings. When writing-off interest or renovation expenses from your rental property, for instance, you want to make sure you use the rental income and expenses on Form T776.
Another important limitation is the nature of your property’s use. If your property was not used as a rental property, it might not be eligible for tax deduction. Strategies like the Smith Maneuver may serve as legal workarounds to achieve similar results; however, they are not fully able to exempt residential properties from their tax obligations.
The government-backed tax benefits of owning and operating a rental property also extend to other types of business operations. If you are operating a legal business or providing a professional service through the property, you may be entitled to a tax-deduction of your mortgage interest. You might also be able to deduct office costs, advertising fees, and even employee salaries. If you are working a remote job, you might even be able to write-off your in-home office as a business rental in certain circumstances.
Despite this, there are still many advantages to renting out your properties. Perhaps the greatest advantage of leasing out your home is that anyone can do it as long as it does not breach your mortgage agreement. While other businesses may have greater eligibility for tax shields, landlords have one of the oldest and simplest business models in play.
Your eligibility for mortgage insurance tax-deductions is based almost solely on the property’s use and income generation. If you refinance your property, you might still be able to write-off your insurance payments, so long as the property is still being used to generate income.
If you are cutting yourself out of the mortgage contract completely, and ceasing insurance payments, the new payee might be able to inherit your tax benefits.
Whether you are looking for tax-deductions, better contract terms, or more, working with a mortgage broker can significantly increase your odds of success.
The mortgage brokers at Clover Mortgage can help ensure that the mortgage product you are getting is suitable for investment properties. If you are planning on renting out part or all of your property, allow us to help make sure that you will not be putting yourself into default with your mortgage lender.
That’s right, with many mortgage lenders, your mortgage agreement will stipulate that you are not allowed to rent any part of your property otherwise you will be putting yourself into default and the lender has the right to call the loan or put you into power of sale. Our brokers are trained to watch out for clauses in the mortgage commitment that might hurt you in the long run.
Clover Mortgage prides itself on having strong working relationships with over 50 different mortgage lenders. This allows us to find the mortgage the best suits your individual needs and helps you achieve your financial goals. Let us help you save thousands of dollars over the term of your mortgage.
Contact Clover Mortgage to book your free consultation today!