dave@lsuc.UUCP (06/15/87)
The U.S. has traditionally allowed deductibility of home mortgage
interest (along with all kinds of other interest, some of which
is now disallowed), while Canada has not. What is the basis of
Canada's system for allowing interest to be deducted?
It's actually quite simple. Paragraph 20(1)(c) of the Income Tax
Act allows a deduction for interest paid where the money borrowed
was used "for the purposes of earning income from business or property".
So:
- home mortgage interest: non-deductible, unless you're
running a business (e.g. consulting) from your home or
earning income from property (e.g. renting out the basement),
in which case part of it will be deductible;
- credit card interest: non-deductible unless it relates
to business or property income purchases;
- bank loan: depends on the purpose. If you invest the money
in common shares in the stock market, or in bonds, or in
a mortgage, the interest will normally be deductible.
The simple test of looking at the purpose of the loan is quite useful
in determining whether your interest is deductible. And, of course,
every $100 of deduction will save you up to $55 of tax, depending
on your tax bracket and the province you live in.
(Incidentally, interest deductibility may change after June 18,
when the government's White Paper on tax reform will be released.)
David Sherman, Consultant
The Law Society of Upper Canada
Toronto
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