Even if we don’t want to admit it, we’re often a lot like the United States. Oh sure, we have hockey and maple syrup to set us apart and sometimes, we even have our own language (“Can I get ya a Timmy’s?”) But still, we listen to the same music, watch the same movies, and even ally with our neighbours to the South. Because of this, there’s often a lot of confusion about whether something is done or offered “only in the States” or in Canada, too. One area that often gets very confused are mortgage payments and taxes.
Many Canadians believe that the interest on their mortgage payments is deductible, but they’re wrong. This is one of those things that you probably have heard of, but it doesn’t apply to us. In the United States, a homeowner is able to claim their mortgage interest on their taxes, but doing so in Canada is likely to only get you in trouble with the Canada Revenue Agency. However, that doesn’t mean that there aren’t ways to save on your first or second mortgage when it comes time to do your taxes.
The biggest way to save on your mortgage during tax time is if you operate your own business out of your home. Whether you’ve outfitted your entire garage into a body shop, or you just need one little desk in the corner to work on the computer, if you use your home to generate income, you can claim your mortgage payments on your taxes. However, you must make sure that you only claim the percentage of your home. So if you’re running that body shop, the garage might account for 10% of your home. If you’re working at one desk only, it might only account for 1% or 3% of your home. You need to determine the square footage of your home, and then what percentage of that is being used for work. That percentage, and only that percentage, of your mortgage payments may be deducted on your taxes.
You can also deduct some of the penalties for breaking a mortgage if you need to move so that you can be 40 kilometres or closer to your work. Again, only a percentage of the penalty will be applied to your taxes; and this usually only applies to a first mortgage and not any HELOCs or home equity loans as you generally won’t be breaking those, just paying them off.
