Is mortgage interest tax-deductible in Canada?

The amount we pay in taxes to the government each year adds up. Unsurprisingly, lots of us are interested in claiming as many deductions as possible to help lower these tax bills. Things like donations, student loan interest and child-care expenses are common tax deductions – but what about mortgage interest? 

These days, Canadians are paying more than ever on their monthly mortgage costs - following 10 rate hikes from the Bank of Canada between March 2022 and July 2023, mortgage interest costs have ballooned 26.3% compared to February 2023. Let’s have a look to see if – and how – mortgage interest can be tax-deductible in Canada.

Is mortgage interest tax-deductible in Canada?

The short answer is: sometimes. It all depends on how the property is used. For a mortgage to be tax-deductible in Canada, the property the mortgage belongs to must be used for generating income (whether that’s rental income, business or professional income). The good news is that primary residences that are also used in some rental capacity can qualify for mortgage interest tax deductions.

Also read: What documents do you need to do your taxes?

Why would you want to use a mortgage for income tax deduction?

During tax season, it’s always smart to claim as much as possible when filing taxes. Doing so will lower the amount of tax you’re required to pay the government, meaning you’ll either lower the amount of taxes you’ll have to pay or you’ll increase the amount of tax return you’ll be given by the government. 

However, it’s important to know if your mortgage is tax-deductible before claiming it at tax time. Below are a few scenarios where your mortgage interest might be tax-deductible.

Is mortgage interest tax-deductible on a rental property in Canada?

Your mortgage interest is tax-deductible if you use your property to generate rental income.

Come tax time, you would use the rental income and expenses line 8710 on Form T776 to claim your rental income, according to the Canada Revenue Agency and Turbotax. The amount of mortgage interest you can claim on your taxes depends on how your property was used as a rental (for example, there are different amounts you can claim if it’s a long-term rental vs. a short-term rental, such as an Airbnb). 

We’ll dive a little deeper into those details in the next section.

How much mortgage interest can be deducted from taxes?

If your total property is rented out for the entire year, you can deduct 100% of the mortgage interest paid on that property.

However, if your property operates as a short-term rental, you may only claim a portion of the interest paid on the home. 

Here are a few basic math examples: 

Short-term rentals of your entire home

If you rent your entire property as an Airbnb, you can only deduct mortgage interest based on how often the property is rented out. 

For example, if you rent out the property for a total of two months in the year, you can deduct 2/12 (16.7%) of your mortgage interest. If you rent it out for a total of six months, you can claim 1/2 (50%). 

Things get a little more complicated if you rent a portion of your home.

Say you rent your basement to a tenant for the entire year. In this case, you must adjust your deduction to be equivalent to the portion of your home that’s rented. So, if your basement is 500 sq. ft and your entire home is 2,000 sq. ft, you can deduct 25% of your mortgage interest. 

And if you’re just renting a room? 

Now, if a portion of your home was rented for part of the year (say you rent a room on Airbnb), you would need to calculate the amount of time it was rented during the year as well as the amount of space it occupies.

For example: If you rent out 500 sq. ft in your 2,000-sq.-ft home for a total of six months of the year, you could claim 12.5% of your mortgage interest. Here's how we arrived at that calculation: The rental portion makes up 25% of the entire home and it was rented out for half the year (so, 25 divided by 2).