Definition
The deductibility of mortgage interest is one of the central tax benefits of rental real estate investment in Canada.
Principle: reasonable expenses incurred to earn rental income are deductible from gross rental income. Interest paid on the mortgage of an income property is fully deductible.
Other deductible expenses for a rental property: - Property and school taxes - Home insurance - Maintenance and regular repairs (not capital improvements) - Management fees and property manager fees - Amortization (Capital Cost Allowance / CCA) - Advertising and rental costs
Non-deductible expenses: - Capital payments (mortgage principal repayment) - Capital improvements (must be capitalized and amortized) - Personal value of work done by the owner
Important: if the unit is partially used for personal purposes (owner-occupant in a duplex), only the rental portion is deductible.