Hi everyone, I get this question quite often recently. Client need to renew the mortgage for the rental property. Bank suggests they take out more mortgage as much as possible so that high interest can create rental loss and that loss can offset other personal income.
I think the additional loan (amount more than the original mortgage balance) might not have interest deductible against rental income. Whether this interest can be deductible depends on how the funds are used. Could someone share their understanding and experiences.
Thanks!
The additional funds borrowed must be used to generate more income, i.e. re-invested into something - another rental property, a business, purchase of tools used in the business, etc.
If the funds are just used to enhance lifestyle then the interest is not eligible for deduction from income, rental or other income.
I think only the bank ends up farther ahead like this and I’d be questioning their motives.
Some of my clients do seem to have a hard time understanding that even if it’s deductible, that doesn’t make it “free”…
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Someone should tell the seniors at the bank that their juniors should not be dispensing tax advice - especially when it is 100% incorrect.
Refinancing is maxxed at the amount currently financed and CRA will ALWAYS, if auditing, trace borrowings to usage, disallowing any amount not used for the purposes of gaining or producing income.
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Obviously you cannot just keep refinancing the loan as you are repeating earlier deductions. ie: you finance a mortgage for $100,000, pay it off and refinance it again. The interest on that $100,000 would be available twice. This is the reason why it must be done for business purposes only… and the CRA does watch this one n(as they should).
I took on a client that was expensing way too much interest. Now he is over 70 and working 4 days a week to try to repay the CRA for excess interest claimed. His wife is unable to work and they have no hope of ever repaying the CRA debt. All because their tax preparer allowed them to claim too much interest. It just is not worth over reaching. The previous tax preparer had been warned about their situation but rather than addressing it, he passed it off to me.
how would the seniors know that it was 100% incorrect advice? they don’t even know themselves. 
I would get as far away from that banker as possible. This banker should be selling used cars. What a way to sell a loan. I think I’d contact the manager and have that loan unwound at the bank’s expense.
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