Creating a tax-deductible Canadian mortgage

Creating a tax-deductible Canadian mortgage
by Ayton MacEachern, CFP, for
Friday, April 16, 2010provided by

The way that mortgages are treated in the Canadian tax code is slightly different than in the U.S. One main difference is that the interest on a mortgage for a principal private residence in Canada is not tax deductible. However, no taxes are payable on any capital gains upon selling the home. But what if there was a way to take advantage of the capital gains exemption, and make the interest tax deductible? Keep reading to find out how to make your Canadian mortgage tax deductible.

Your Net Worth and Cash Flow

An individual’s net worth is his or her assets minus liabilities. To increase your net worth, you must either increase your assets, decrease your liabilities, or both.

An individual’s free cash flow is the amount of cash that is left over after all expenses and debt payments have been made. To increase your cash flow, you must spend less, get a better paying job, or pay less tax. Let’s take a look at a strategy to help you increase your assets by building an investment portfolio, decrease your debts by paying off your mortgage faster, and increase your cash flow by paying less tax; effectively increasing your net worth and cash-flow simultaneously.

The Strategy

Every time you make a mortgage payment, a portion of the payment is applied to interest, while the rest is applied to principal. This principal payment adds equity to the home and can be borrowed against (often at lower rates). If the borrowed funds are then used to purchase an income-producing investment, the interest on the loan is tax deductible, which makes the effective interest rate on the loan even better.

This strategy calls for the homeowner to borrow back the principal portion of every mortgage payment, and invest it in an income-producing portfolio. Under the Canadian tax code, interest paid on monies borrowed to earn income is tax deductible. As time progresses, your total debt remains the same (as the principle payment is borrowed back each time a payment is made), but a larger portion of it becomes tax deductible debt (good debt), and less of it remains as “old” non-deductible debt (bad debt).

To explain this better, refer to Figure 1 below, where you can see that the mortgage payment of $1,106 per month consists of $612 in principal and $494 in interest.

Figure 1

As you can see, each payment reduces the amount owing on the loan by $612. After every payment, the $612 is borrowed back and invested – this keeps the total debt level at $100,000, but the portion of the loan that is tax deductible grows by each payment. You can see in Figure 1 that after one month of implementing this strategy, $99,388 is still non-deductible debt, but $612 is now tax deductible.
This strategy can be taken a step further: The tax-deductible portion of the interest paid creates an annual tax refund, which could then be used to pay down the mortgage even more. This mortgage payment would be 100% principal (because it is an additional payment), and could be borrowed back in entirety and invested in the same income-producing portfolio.

The steps in the strategy are repeated monthly and yearly until your mortgage is completely tax deductible. As you can see from the previous figure and the next figure, the mortgage remains constant at $100,000, however, the tax deductible portion increases each month. The investment portfolio, on the side, is growing also, by the monthly contribution and the income and capital gains that it is producing.

Figure 2

As seen in Figure 2, a fully tax deductible mortgage would occur once the last bit of principal is borrowed back and invested. The debt owed is still $100,000, however 100% of this is tax deductible now. At this point, the tax refunds that are received could be invested as well, to help increase the rate at which the investment portfolio grows.


The goals of this strategy are to increase cash flow and assets while decreasing liabilities. This creates higher net worth for the individual implementing the strategy. In addition, this strategy also aims to help you become mortgage-free faster, and to start building an investment portfolio faster than you could have otherwise.

Let’s look at these a bit closer:

* Become Mortgage-Free Faster: The point at which you are technically mortgage free is when your investment portfolio reaches the value of your outstanding debt. This should be faster than with a traditional mortgage because the investment portfolio should be growing at the same time as you are making mortgage payments. The added mortgage payments from the tax returns can pay down the mortgage even faster.

* Build an investment portfolio while paying your house down: This is a great way to start saving. It also helps free up cash that you might otherwise not have been able to invest prior to paying off your mortgage.

Now, let’s compare a traditional mortgage to that of a person using this tax-deductible technique.

Case Studies

Dick and Jane’s House – Bought the Traditional Way

Dick and Jane bought a $200,000 home with a $100,000 mortgage amortized over 10 years at 6% with a monthly payment of $1,106. After the mortgage is paid off, they invest the $1,106 that they were paying for the next five years earning 8% annually.

After 15 years, they own their own home, and have a portfolio worth $81,156

Dick and Jane’s House – Bought Using the Tax Deductible Strategy

Dick and Jane bought a $200,000 home with a $100,000 mortgage amortized over 10 years at 6% with monthly payments of $1,106. Every month, they borrow back the principal and invest it. They also use the annual tax return that they receive from the tax deductible portion of their interest and pay off the mortgage principal. They then borrow that principal amount back and invest it. After 9.42 years, the mortgage will be 100% good debt, and will start to produce an annual tax refund of $2,340 assuming a marginal tax rate (MTR) of 39%. After 15 years, they own their own home, and have a portfolio worth $138,941 – a 71% increase.

A Word of Caution

This strategy is not for everyone. Borrowing against your home is psychologically difficult, and if the investments don’t yield expected returns, this strategy could yield negative results. By re-borrowing the equity in your home, you are also removing your “cushion” of safety if the real estate (or investment) markets take a turn for the worse. By creating an income-producing portfolio in an unregistered account, there can also be additional tax consequences – so always consult with a professional financial advisor to determine whether this strategy is for you, and if it is, have it tailor-made to you and your family’s personal financial situation.

Bank of Nova Scotia $800k Mortgage – No money down

By The Canadian Press

OTTAWA – A Liberal MP is calling on “ghoulish” adversaries to back off their criticism of Helena Guergis even as his own party is asking the federal ethics commissioner to look into a big mortgage given to the embattled Tory cabinet minister.

Glen Pearson wrote on his blog late Tuesday that the opposition and media feeding frenzy over the status of women minister’s conduct has gone too far, shaming the country and all those who’ve reveled in her “public disgrace.”

“I’ll be honest here and state that I believe it’s time we backed off from the Helena Guergis story – not because of what we’re discovering about her but about what we’ve seen in ourselves,” Pearson wrote.

“Citizens, media, political parties (including her own) – we’ve all pursued her calamities to such a degree that we now seem kind of ghoulish.”

Guergis has been under fire since she threw a tantrum at Charlottetown airport in February.

And last week, she faced further calls for her resignation after it was revealed that several current and former staffers had written letters to newspapers praising the minister – without identifying their links to her.

Guergis’s husband, former Edmonton Tory MP Rahim Jaffer, has helped keep the spotlight on the minister. He was fined last month for careless driving after charges of cocaine possession and impaired driving were dropped.

Then on the weekend, a report surfaced that Guergis was given a mortgage for the full $880,000 cost of a home in Ottawa’s tony Rockcliffe district.

Liberal MP Marlene Jennings wrote Tuesday to ethics commissioner Mary Dawson, asking her to determine if Guergis, who did not apparently make any downpayment, was given preferential treatment by an Edmonton branch of the Bank of Nova Scotia which financed the house purchase.

Jennings noted that the conflict of interest code for MPs stipulates that no MP or family member shall accept – directly or indirectly – any gift or benefit that might be perceived as an attempt to influence the MP.

But Pearson is clearly uncomfortable with the latest direction the Guergis saga has taken, opining that the media has substituted “fair-minded journalism for a kind of fanatical pursuit of the salacious.” And he says citizens and politicians have joined the fray with glee, to their discredit.

“A decent, fair-minded country knows when to look away, to quietly deal with its umbrage in a quiet and respectful manner,” he wrote.

“Except in the Guergis story we have shown that we left those characteristics of decency and respectfulness somewhere in the past. We are witnessing a woman living her worst nightmare, brought on by herself surely, but made decidedly more horrific by our endless fascination with someone going down in flames.

“It is at once the best of sensationalism and the worst of human decency.”

Pearson said the willingness of Canadians to revel in Guergis’s descent “speaks volumes about us and the degree to which we have declined.”

“The longer we linger over her public humiliation, the more we add to our own shame.”

Bio Finance 2010 The who what where when and why?

BioFinance 2010 is the leading investor conference in Canada
for the life sciences industry. This three-day event brings together key
industry players interested in investment opportunities and issues affecting
companies in the life sciences sector. Presenting companies will span a range of
industries including: biologics, medical devices, drug delivery, vaccines,
diagnostics, bio-energy, green technologies, bio materials, industrial biotech,
and research services.

BioFinance 2010 will be held on April 6-7, 2010 at
the Toronto Marriott Eaton Centre. It begins with a gala Opening Reception on
April 6 and concludes with Sponsors Receptions on April 7.

In addition
to the BioFinance program, Sponsors will also be hosting individual events on
Tuesday April 6 and Thursday April 8. The details and location are currently
being developed. Please visit our website again for updates.

BioFinance with Gowling Lafleur Henderson Apr.6-8

Bio Finance with Gowling Lafleur Henderson Apr.6-8

This week’s BioFinance 2010 conference in Toronto brings light to a sector that has experienced significant challenges in 2009. With the biotechnology outlook dim, many companies were the targets of mergers and acquisitions. Part of the sector’s performance in 2009 can also be attributed to uncertainty about health care reform legislation in the United States. Given recent developments and the likelihood of a shake up within the sector, will biotechnology and medical technology be in demand for Canadian investors?

This week’s BioFinance 2010 conference in Toronto brings light to a sector that has experienced significant challenges in 2009. With the biotechnology outlook dim, many companies were the targets of mergers and acquisitions. Part of the sector’s performance in 2009 can also be attributed to uncertainty about health care reform legislation in the United States. Given recent developments and the likelihood of a shake up within the sector, will biotechnology and medical technology be in demand for Canadian investors?

Investors, analysts and legal professionals are looking towards next week’s conference for guidance on how this sector fairs for the remainder of 2010 and beyond. This industry may be positioned for renewed investor interest in 2010, despite the market lagging in 2009.

Gowling Lafleur Henderson (Gowlings) was recently named one of the world’s life science patent litigation law firms. I would be happy to set up an opportunity for you to speak with Michael Herman and Bob Ford, partners in Gowlings’ business law department, who are available during and after this conference to discuss how Canadians should view the biotechnology industry in 2010 and how they see the next generation of medicine development in Canada. Both professionals work to service the particular needs of technology and life sciences companies and those investors that fund them. Please let me know if you would like to discuss this opportunity.

ADMONEY e-commerce “Make Money Online” Canada

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Take e commerce seriously and “make money online” you have a product, you have a service and you need a fast, cheap and efficient transactional process that let’s you focus on your business and not your site. U.S. dollar or Canadian dollar and in some extraordinary or high volume business Canadian and U.S. dollar transactions available.  Learn more about e-commerce in Canada and about “You and Your Money” online. Admoney is cheaper, better and more efficient than any other online credit card processor, amongst the all the giants in ecommerce including moneris or chase payment technologies you will not find a lower per transaction price to do business online. Complete solutions starting at $1500.00 one time set up solutions for serious e commerce projects with less than 100 products. The MONEY Store special offer $500.00 for a one of product or service simple online check out processing with $100 or less item cost. Includes superior seo and sem targeted push for your one of product or service on our mini-store model.

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MONEY MATTERS – Bonuses Reign as Top Employee Reward, CFOs Say

TORONTO, March 2 /CNW/ – Despite lean budgets for many businesses today, most financial executives say cash is king in recognizing their teams’ hard work. Thirty-four per cent of chief financial officers (CFOs) interviewed for the Accountemps survey cited bonuses as the most effective way to acknowledge a job well done. Another 28 per cent of CFOs, however, indicated that they do not reward employees after major projects.

The survey was developed by Accountemps, the world’s first and largest specialized staffing service for temporary accounting, finance and bookkeeping professionals. It was conducted by an independent research firm and includes responses from more than 270 CFOs from a stratified random sample of Canadian companies with more than 20 employees.

CFOs were asked, “Which of the following do you feel is most effective in rewarding your accounting team after major projects?” Their responses:

    Bonus  ..................................................       34%
    Time off  ...............................................       15%
    Departmental lunch or social gathering  .................       11%
    Tickets to sporting or entertainment events  ............        8%
    Do not reward  ..........................................       28%
    Don't know/no answer  ...................................        3%
    ((*) Survey does not equal 100 due to rounding)

“Offering bonuses for a job well done can be an effective way to motivate and retain employees,” said Kathryn Bolt, president of Accountemps’ Canadian operations. “For those workers taxed with additional responsibilities as a result of staff cutbacks, offering recognition demonstrates that their contributions are valued.”

Bolt acknowledged that bonuses may not be feasible for some firms. “While some companies may be challenged in offering compensation-based rewards, investing in budget-friendly recognition programs will help motivate staff and protect companies from the threat of employees leaving as the economy improves.”

About the Survey

The Canadian study was developed by Accountemps, a division of Robert Half International and the world’s first and largest specialized staffing service for temporary accounting, finance and bookkeeping professionals. It was conducted by an independent research firm and is based on more than 270 telephone interviews with CFOs from a random sample of Canadian companies with 20 or more employees.

About Accountemps

Accountemps has more than 360 offices worldwide and offers online job search services at Follow Accountemps for workplace news at

For further information: Kristie Perrotte, (416) 350-2330,

Canada set to Play Halak and the Slovakians

The Montreal Canadiens didn’t have one player that played for Team Canada Olympics. The Habs real  top goalie “Halak” is set to make his mark as one of the best by beating the defending olympic gold medal champions. The Swedes are finished now and the Slovakian team has nothing to lose now in facing the high scoring Canadians tomorrow at 4:30 pm Vancouver time 7:30 pm Toronto time. On the way to the gold medal round television history may be achieved in reaching the most watched hockey game in Canada ever.

Canadians thrash Russians – Swedes or Slovakians next

Canada beats Russia

VANCOUVER – It wasn’t the gold-medal game . . . it just felt like it.

Thirty million Canadians will say they were there. And maybe they were – in the hearts of 20 Canadian players who felt their push.

The best of Canadian hockey was on display in this victory for the ages: Passion. Heart. Hunger. Will.

The Canadians came at Russia like a Tsunami.

“We were at the boiling point as soon as the puck dropped,” said Canadian forward Eric Staal.

As for the top-ranked Russians, they didn’t even come to a simmer, as Canada hung one of the most embarrassing defeats on Russia in its Olympic history. Officially, the 7-3 rout is Russia’s second worst Olympic loss – behind a 5-0 beating by Finland in 1994.

“Unfortunately, our Olympic Games are over,” said Russian head coach Vyacheslav Bykov, “and I apologize for how it happened.”

Russian superstar Alex Ovechkin, targeted at every turn, and especially pounded early by Rick Nash and Shea Weber, looked like he wished he were somewhere else. To paraphrase Pedro Martinez, the Canadians whipped No. 8 like they were his ‘daddy.’ One Weber hit broke Ovechkin’s stick. Subsequent hits broke his spirit.

“OOOOO-vvie!!” fans chanted, mockingly, in the third period.

And then, “We want Swe-den!!”

Finally, “We want gold!”

Make no mistake, Russia wanted this one, too.

But Canada wanted it in the worst way, here on home ice, after Russia ruined the 2006 Olympics by beating Canada 2-0 in the quarter-finals, then went on to win two world titles over Canada.

This sweet victory was a long time coming. At the Olympics, Canada hadn’t defeated the Russians in any form – as Russia, the Soviet Union or United teams since 1960, that black-and-white TV era when Canada was represented by the Kitchener-Waterloo Dutchmen. That was also a rout, 8-5. Canada’s overall Olympic record against Russia just improved to 2-9, but 1-1 since the NHL joined the Olympics in 1998.

Yes, it’s been 50 years since Canada celebrated an Olympic win over this nation, and if that number rings a bell, it should. It was also 50 years between Olympic gold hockey medals when Canada won at Salt Lake City in 2002.

All day long, the city anticipated this match, and clearly so did Canada’s team, storming up ice from the opening faceoff. The Russians had to wonder what hit them (usually it was Brenden Morrow or Mike Richards or Jonathan Toews or Shea Weber . . .).

Ovechkin would have loved to upstage Sidney Crosby and his Canadian team in their own rink, but it was not happening, especially with Evgeni Nabokov springing leaks in the Russian net. The goal he let through off Morrow’s backhand, after Russia scored to close to 3-1, was horrific as well as fatal for the Russians. Canada got the bounces it did not get against the USA.

Where’s Mike Keenan when he’s needed? Nabokov should have been hooked after Morrow’s goal, if not earlier. Mercifully, Ilya Bryzgalov relieved Nabokov after Canada’s sixth goal, a slapshot by Weber. Corey Perry scored two goals, as he and Anaheim teammate Ryan Getzlaf put on an offensive show, with some dazzling passing plays. Defenceman Dan Boyle got it started, setting up Canada’s first goal and then scoring the second one himself.

“We wanted to play that physical game,” Perry said. “We grinded, played that cycle game. That’s what we have to do to be successful.”

Toews said the Canadians knew pressure would fetch rewards.

“An offensive team like that,” Toews said, “is going to turn pucks over. We weren’t going to give up and give them a chance to come back.”

The pressure on Russia’s defence was designed to limit stretch passes to their dynamic forwards. Mission accomplished. Russian goals by Dmitri Kalinin, Maxim Afinogenov and Sergei Gonchar made things mildly interesting as far as drama, but really, it was over when Canada pumped four past Nabokov in the first period.

Ovechkin was supposed to be saving himself for Canada (or maybe it’s the 2014 tournament in Sochi?). Ovechkin did little in the three preliminary games, and throughout, he’s been miserable. Par for his Vancouver behaviour, Ovechkin spoke to Russian media post-game, then brushed off all other inquiries, twice blowing through the mixed zone.

Canadian head coach Mike Babcock was heard spinning lovely pre-game yarns about this game turning into the Sid vs. Ovie show, which was a smokescreen, of course. Babcock had no intention of running Crosby’s skill line against Ovechkin, Alex Semin, and Evgeni Malkin. That assignment went to a new bulldog line of Nash, Toews and Richards. Nos. 61, 16 and 18 didn’t check Ovechkin, they put him on, and wore him out. The Toews line started the game and starred in it – an especially gritty, effective performance by Toews, the young Chicago Blackhawks centre, who has found his tournament niche.

Oddly, despite the buildup of Sid vs. Ovie, neither protagonist played much of a role. Crosby did not score a point in the rout.

Still, what a chapter for young fans, just catching on to this Canada-Russia rivalry thing, rooted, in the Cold War days when Father David Bauer’s amateur nationals tried their best, then finally Canada’s NHL pros were assembled in 1972, and won a cliffhanger eight-game series on Paul Henderson’s historic goal.

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