30 May, 2022
woman paying for cra taxes

You can make your income tax payments to the CRA Canada Revenue Agency in several ways, including online, by mail, or at your local Tax Service office. But did you know that when it comes to paying your taxes or tax debts, a mortgage can help? Read on as we show you how you can use your mortgage to lower your tax bill.

When trying to lower your tax bill, you’ll probably be looking for as many deductions as possible. Donations, student loan interest and child-care expenses all fall into this category. However, one of the most frequently asked questions Canadians have when dealing with deductibles is “can my mortgage interest be written off as a tax-deductible expense?

The answer in many situations is YES. It all depends on the way you choose to use your property. Are you renting out just a part of it, or is it a full space rental? Are you running a business from home, or are you just living on the property? All these factors will determine how much mortgage interest you can claim. 

So What Exactly Are CRA And Income Tax? 

CRA short for Canada Revenue Agency, also known as Agence du Revenu du Canada is the federal agency responsible for collecting taxes and administrating tax laws for the government as well as many of the country’s provinces and territories. The CRA uses its tax system to oversee a variety of social and economic incentive programs, all of which are based on international trade legislation. 

Income taxes are levied by both provincial and federal governments along with consumption and sales taxes. For example, in Canada, one might find the Goods and Services Tax — GST, for short — in some provinces and the Harmonised Sales Tax (HST) in others.

If you’re planning to buy a home soon and need to take out a mortgage, you can use it to pay off any outstanding income tax debt you have with the CRA

Tax-Deductible Mortgage In Canada

For a mortgage to be tax-deductible, the property in question must be used for generating income. This might come as rental income, business income or professional income. Primary residences qualify for mortgage interest tax deductions. 

Advantages Of Using Your Mortgage For CRA Income Tax Payment

Making your highest claim when filing your tax forms will lower the amount of tax you’re required to pay the government. 

Simply put, you’ll either lower the sum you need to pay or you’ll increase the amount of tax return the government needs to reimburse. That being said, it’s essential to find out whether your mortgage qualifies as tax-deductible before claiming it during tax season. Here are a few cases in which your mortgage interest may qualify.

Mortgage Interest On a Rental Property

If you are using your property to generate rental income, this makes your mortgage interest tax-deductible. Use the rental income and expenses on Form T776 to claim your rental income. 

Even if your property is generating rental income, your mortgage interest is still tax-deductible. Keep in mind that the amount may vary according to the type of rental you have ongoing long-term vs. short-term, such as Airbnb, for example. 

If you rent out your property for an entire year, you can deduct up to 100% of the mortgage interest for said property. 

A short-term rental operation, however, may result in claiming just a portion of the interest. 

An Airbnb rental, for example, can only deduct mortgage interest based on the period of time it has been rented out. So, if you were to only rent out for two months per year, that means you can only deduct 2/12 of your mortgage interest. A six-month rent will allow you to claim 50% and so on. 

Renting Out Portions Of Your Home

This is where it gets trickier. In this case, the amount is adjusted to the amount of space you choose to rent out. For example, if you are to rent out the first floor of your house and the first floor covers 500 square feet from a total of 2000 square feet, this means you are entitled to deduct 25% of your mortgage interest. 

If you combine the two options — meaning renting out just a portion of your home for part of the year, such as renting out a room on Airbnb during the summer — you need to consider the amount of space divided by time period. So if you are to rent out the first floor mentioned in the above example for 6 months, this means you will be entitled to 25% / 2  of mortgage interest.

couple calculating income tax debt

Keep in mind that the main portion of your mortgage will not be tax-deductible. This is only available for the interest portion. However, there still are plenty of mortgage-related fees that you can tackle. These include: 

  • Many mortgage applications, appraisal, processing and insurance fees.
  • Mortgage guarantee fees. 
  • Mortgage brokerage and finder’s fee
  • Other legal fees

Writing Off Mortgage Interest When You Work From Home

If you own a business and work from home, you can deduct workspace business expenses as long as the following conditions are met:

  • Is it your primary place of business? 
  • Or is the space used only to generate business income? 

If that’s the case, mortgage interest is deductible along with other property taxes, electricity and heating bills, and so on, but they’ll relate to the portion of your home dedicated to business purposes. Don’t worry if you find the math too confusing. Tax software companies will make all the calculations easier for you. 

However, you won’t qualify for mortgage interest tax deduction if you are working from home for an employer, only if you are self-employed


There are many ways you can lower your tax bill. By how much? That depends immensely on each person’s personal financial and mortgage context. The amount of space you choose to rent out and for how long it’s either rented out or used as a workspace will determine the proper deductible amount.

To get a clearer picture of what you can and can’t claim on your taxes, you can employ the help of a licensed mortgage broker. They can help you understand the intersection between your income tax, paying the CRA, your mortgage, and how your property can help you leverage these.

But that’s not all! Other than advice on taxes, a mortgage broker can help you through the entire process of getting a new mortgage, a home equity loan, or refinancing your current one. 

They negotiate with the lender on your behalf, saving you money on fees and interest. If you’re planning to buy a house, finding a real estate agent is essential, but so is finding a great mortgage broker. A real estate agent might know about local housing markets and trends, but they don’t know everything about mortgages and financing like a broker does.

You might also enjoy:

Leave A Reply

Your email address will not be published.