If you’re a homeowner with a mortgage, part of each mortgage payment goes toward paying interest. You may have asked yourself, “is mortgage interest tax deductible in Canada?” After all, our American neighbours can declare the interest on their mortgages as a tax deduction. So can Canadian homeowners do the same? Let’s answer that directly, and then look at the legitimate ways you can actually turn your mortgage interest into a deduction.
Key Points
Key Points
1. On your primary residence, mortgage interest is not tax deductible in Canada, with a few exceptions.
2. Interest only becomes deductible when the borrowed money is used to earn income, so you can make some or all of it deductible by renting out your home, running a business from it, or using the Smith Maneuver.
3. Even if your mortgage interest is not deductible, you can still claim other homeowner tax breaks, including the First-Time Home Buyers’ Tax Credit, the Home Buyers’ Plan (now up to $60,000), and the new First-Time Home Buyers’ GST rebate.
Is Mortgage Interest Tax Deductible In Canada?
No. In most cases, you cannot deduct the mortgage interest on your primary residence in Canada. Unlike in the United States, there is no general mortgage interest deduction for Canadian homeowners.
The reason comes down to one rule: in Canada, interest is only tax deductible when the borrowed money is used to earn income. Since the money you borrow to buy the home you live in is not earning you any income, its interest is not deductible. That same rule, though, is exactly what opens the door to the workarounds below. The moment your home (or the equity in it) starts earning income, some or all of that interest can become deductible.
Did You Know?
In 2009, a case reached the Supreme Court of Canada in which two homeowners had deducted over $100,000 in interest on their mortgage between 1994 and 1996. The Minister of National Revenue called the deductions “abusive tax avoidance” and had them declared invalid. After the homeowners took legal action, the Supreme Court sided with the government, confirming that mortgage interest cannot be deducted unless the home generates income.
When Is Mortgage Interest Deductible In Canada?
Here is the quick reference for when your mortgage interest is and is not deductible.
| Situation | Is the interest deductible? |
|---|---|
| Primary residence used only as your home | No |
| Rental property, or renting out part of your home | Yes, on the rental portion |
| Running a business from your home | Yes, on the business-use portion |
| Money borrowed against your home to invest for income (the Smith Maneuver) | Yes, on the invested portion |
| Salaried or commissioned employee working from home | No (interest is not deductible) |
The Loophole: How To Make Your Mortgage Interest Tax Deductible In Canada
These are not shady tricks. They are legitimate, CRA-recognized strategies that all rely on the same principle: interest becomes deductible the moment the borrowed money earns income. By putting your home, or the equity in it, to work, you can turn some or all of your mortgage interest into a tax deduction. Here are the main ways.
Rent Out Part Or All Of Your Home
One of the most common ways to make your mortgage interest deductible is to turn your home, or part of it, into an income property. If you rent out a private room, the basement, or the entire home, you can claim a share of the mortgage interest against that rental income. How much you can deduct depends on how much of the home is rented and for how long (see the calculation below).
Run A Business From Your Home
If you run a business from home, you can write off a portion of your mortgage interest based on how much of your home’s space is used for the business. For instance, if your home office takes up 10% of your home, you may be able to deduct 10% of your mortgage interest. Because every taxpayer’s situation is different and the rules are detailed, it is worth consulting an accountant first.
Use The Smith Maneuver
The Smith Maneuver is an advanced strategy that converts the non-deductible interest on a residential mortgage into tax-deductible investment-loan interest. To use it, you need a re-advanceable mortgage that pairs a regular mortgage with a home equity line of credit (HELOC). As you pay down the mortgage, an equal amount of credit frees up on the HELOC, which you re-borrow and invest in income-generating assets like dividend-paying stocks or funds.
Because the borrowed money is now invested to earn income, the interest on the HELOC becomes tax deductible. The refund can then be applied to the mortgage to pay it down faster. The Smith Maneuver is powerful but complex and carries real risk if your investments fall or rates rise, so it is not for beginners, and you should speak with a financial professional before starting.
How Much Mortgage Interest Can You Deduct On A Rental Property?
Once your property earns rental income, the mortgage interest is deductible, but the amount depends on how much of the home is rented and for how long:
- Entire home rented year-round: If you rent out 100% of a property for 12 months, you can deduct 100% of the mortgage interest.
- Entire home rented part of the year: If you rent out 100% of the home for only part of the year, you can deduct 100% of the interest paid during the rental period. Rent it for 3 months, and the interest from those 3 months is deductible.
- Part of the home rented year-round: If you rent out part of your home (say, the basement) all year, you can deduct that portion of the interest for the whole year. If your home is 2,000 square feet and you rent out a 1,000 square-foot basement, that is 50%, so you could deduct 50% of your annual mortgage interest.
- Part of the home rented part of the year: If you rent out part of your home for only part of the year, you deduct the applicable share for that period. Rent out 50% of the square footage for 3 months, and you can deduct 50% of the interest for those 3 months.
A quick example: if you paid $12,000 in mortgage interest for the year and rented out 50% of your home the whole year, you could deduct $6,000. You claim the interest portion on line 8710 of the T776 Statement of Real Estate Rentals.<sup>1</sup>
Is HELOC Interest Tax Deductible In Canada?
The interest on a home equity line of credit follows the same rule as mortgage interest: it is only deductible when the borrowed money is used to earn income. So HELOC interest can be tax deductible when you use the funds to:
- Invest in income-producing assets like dividend-paying stocks or funds
- Fund a business (for example, to buy equipment, a vehicle, or property for the business)
- Buy or improve a rental or other income-generating property
If you use a HELOC for personal spending, such as a renovation on the home you live in or a vacation, the interest is not deductible. And if you use the HELOC partly for investing and partly for personal expenses, only the interest on the investment portion can be deducted, so it is important to keep those funds separate and well documented.
Can You Deduct Mortgage Interest If You Work From Home?
If you are a salaried or commissioned employee who works from home, you cannot deduct mortgage interest or your mortgage principal. Employees can only deduct expenses directly tied to their workspace, such as a portion of heat, electricity, water, and internet, and certain supplies.
Keep in mind that the temporary flat-rate method (the $2-per-day shortcut used during the pandemic) ended after the 2022 tax year. For 2023 and later, employees must use the detailed method and have their employer complete and sign Form T2200 to claim home-office expenses.
What Happens If You Sell A Home You’ve Used For Income?
Running a business from home or turning your residence into an income property can come with tax advantages, but selling it afterward comes with one drawback: capital gains tax. If you sell a home that has been used to generate income, you pay tax on the capital gain, the profit over what you paid. In Canada, 50% of the capital gain is taxable at your marginal rate.
The good news is that your principal residence is exempt from capital gains tax as long as it was not rented out or used to run a business. Just remember that you still have to report the sale of your home on your tax return, even when the gain is exempt.
What Other Tax Deductions And Credits Are Available To Canadian Homeowners?
Even if you cannot deduct the mortgage interest on your primary home, there are plenty of other deductions and credits you may qualify for as a homeowner in Canada.
First-Time Home Buyers’ Tax Credit (HBTC)
The First-Time Home Buyers’ Tax Credit is a non-refundable credit that lets first-time buyers claim up to $10,000 for the purchase of a qualifying home. If you’re eligible, that works out to up to $1,500 back when you file.
Home Buyers’ Plan (HBP)
The Home Buyers’ Plan lets first-time buyers withdraw up to $60,000 from their RRSPs tax-free for a down payment, up from the old $35,000 limit for withdrawals made after April 16, 2024. A qualifying couple can withdraw up to $120,000 combined. The funds must be repaid to your RRSP over 15 years, though recent withdrawals get a temporary grace period before repayment begins.
First-Time Home Buyers’ GST Rebate
This is a newer program worth knowing about. For first-time buyers of a new home, the government removes the GST on homes priced up to $1 million, saving up to $50,000, and reduces it on homes between $1 million and $1.5 million. It applies to purchase agreements signed after May 26, 2025.<sup>3</sup>
GST/HST New Housing Rebate
Separate from the first-time buyer rebate above, newly built or substantially renovated homes are subject to GST or HST, and you may qualify for the GST/HST New Housing Rebate. It rebates part of the GST paid on your home, up to a maximum of $6,300.
Multigenerational Home Renovation Tax Credit (MHRTC)
This credit lets homeowners claim 15% of up to $50,000 in renovation costs to build a secondary suite for a family member, worth up to $7,500 back at tax time.
Home Accessibility Tax Credit (HATC)
If you need to make your home more accessible for yourself or a family member with mobility issues, this non-refundable credit covers eligible renovation expenses up to $20,000, giving you up to $3,000 back.
Work-From-Home Tax Deductions
As noted above, mortgage interest is not one of them, but salaried or commissioned employees working from home may deduct a portion of expenses such as:
- Heat, electricity, and water
- Internet access
- Rent
- Maintenance
- Office supplies (computer, phone, printer, ink, paper, envelopes, folders, stamps)
Final Thoughts
With few exceptions, you can’t deduct the mortgage interest on your primary residence in Canada. But the same rule that blocks the deduction also shows you the way around it: because interest becomes deductible once the borrowed money earns income, you can turn some or all of your mortgage interest into a deduction by renting out your home, running a business from it, or using the Smith Maneuver. And even when the interest isn’t deductible, the credits and rebates above can still put money back in your pocket. Given how much depends on your specific situation, it is always worth confirming the details with an accountant.
Mortgage Interest FAQs
No. In most cases you cannot deduct the interest on the mortgage for the home you live in. Interest only becomes deductible when the borrowed money is used to earn income, such as from a rental, a business, or investments.
If you qualify, you subtract the interest you paid on your mortgage from your taxable income, which lowers the amount of tax you owe. Only the interest portion of your payment counts, never the principal.
If the interest is on an income-generating property, you enter the interest portion of your mortgage on line 8710 of the T776 Statement of Real Estate Rentals.
Only when the borrowed money is used to earn income, such as investing for dividends or interest, funding a business, or buying an income property. HELOC interest used for personal spending is not deductible.
Yes, through the Smith Maneuver. You use a re-advanceable mortgage that includes a mortgage and a line of credit, and invest the borrowed funds in income-generating assets. Because that money earns income, the interest on it becomes deductible. It is complex and risky, so speak with a financial professional first.
References
- Canada Revenue Agency. (2026). Rental income and expenses (T776). https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rental-income.html
- Government of Canada. (2026). The Home Buyers’ Plan (HBP). https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/what-home-buyers-plan.html
- Government of Canada. (2026). First-time home buyers’ GST/HST rebate. https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/gst-hst-businesses/gst-hst-rebates/first-time-home-buyers-gst-hst-rebate.html
