You may be wondering whether you can claim a credit for mortgage payments—or at least the interest paid on mortgages—on your income tax return. But the Canada Revenue Agency (CRA) looks at your mortgage as a personal expense that does not normally qualify for credits.
However, if you run a business from home or if you are eligible to claim home employment expenses, you might be able to deduct the interest paid on your mortgage.
Here, we dig into the “how and why” of mortgage tax deductions.
When your mortgage interest can be tax deductible
Mortgages can be considered money loans that are specific to property. If mortgages are incurred for the purpose of earning income by renting property to tenants, the interest portion of the mortgage is deductible.
However, this interest is only deductible in the original term of the loan. And if a lump sum amount was paid to reduce the interest rate on a mortgage loan only a prorated portion of the interest is deductible in the tax year it was paid.
You can claim this mortgage interest on line 8710 of the T776, Statement of Real Estate Rentals form.
Home expenses that landlords and the self-employed can claim
If you run your own business at home as a self-employed, you will file a business return, or T2125—Statement of Business or Professional Activities, with your income tax return. When you work from home, you can claim home-office expenses, such as utilities, maintenance, home insurance, and more.
If you are working out of a part of your principal residence, you can claim the property taxes that are related to the section you’re working in.
For example, if your total house size is 2,500 ft2, and your office space is 300 ft2, you can claim the following percentage of your home expenses:
Percentage of house use = 300 / 2,500 = 12%
Also, if you are renting out a section of your principal residence, you claim a percentage of the expenses that correspond to the rented space.
Other types of deductible home employment expenses
There are many variables to employment expenses. Both salaried employees and commissioned employees might be eligible to deduct employment expenses related to their work.
As a salaried employee, you can only claim the mortgage interest on your tax return. As a commissioned employee, you can claim the mortgage interest, the property taxes, and the insurance. But you are limited by the home-use percentage and commissions paid—since your expenses cannot exceed your commissions.
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