What if mortgage interest on your new personnal residence was deductible from your income?
In fact, self-employed workers who are not incorporated will now be eligible for such an advantage. Following a recent decision by the Supreme Court of Canada, combined with a new administrative position taken by Revenu Canada, these workers may now use the so called "cash damming" technique and therefore convert non-deductible mortgage interest - on their personal residence - into deductible interest.
Astounding figures
In referring to the mortgage table below, we note that a person who has opted to amortize his residential mortgage of $150,000 (at an average rate of 6%), over a 20 - year period, may deduct an imposing figure of $106,388 from his income, over the years.
| Amortization period | ||||
|---|---|---|---|---|
| mortgage | 10 yrs | 15 yrs | 20 yrs | 25 yrs |
| $100,000 | 32,781 | 51,179 | 70,925 | 91,942 |
| $150,000 | 49,172 | 76,768 | 106,388 | 137,913 |
| $200,000 | 65,562 | 102,358 | 141,850 | 183,884 |
| $250,000 | 81,953 | 127,947 | 177,313 | 299,855 |
For example, if a taxpayer falls into the 15% income tax bracket, he will eventually have $47,875 more in his pocket, after tax. In addition, the cost of using this strategy ranges from very little to absolutely nothing at all! So...
A few recommendations
Since there are other planning strategies designed to maximize the tax benefits within the cash damming technique, consult a professional who will be able to set up a strategy that is perfectly in keeping with your needs, taking into account such aspects as:
- The rules on partition of the family patrimony
- Personal and business expenditures (a car, for example)
- GTS and QST collected on your sales within your business
- A situation where the spouses are co-owners
Etc...
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