Mortgage interest deductability

[Shadednine]

I`m currently living in a condo in downtown Edmonton, and am in the process of buying a new house. I`ve decided to rent the condo rather than sell, but in order to do this I need the equity from it as a down-payment on the new house. I have determined through exhaustive web research and a few calls with the CRA that if I refinance my condo and use the money to buy a new personal residence, the loan would not be tax-deductible. In general, the interest on a mortgage, HELOC, or other loan is only deductible if the borrowed money is directly used to purchase a rental property.

Paragraph 15 of bulletin IT533 says that a taxpayer may restructure borrowings and the ownership of assets to meet the direct use test. I interpret this to mean that I am free to manipulate the ownership of the condo in order to meet the direct use test, or in other words, I am allowed to gift the condo to my fiancée and buy it back with a loan. Unfortunately, this will incur additional expenses, but at least I would satisfy the direct use test.

Do you agree that this strategy should make the interest on the mortgage tax-deductible?

Is the CRA going to view this gifting/buying back as if the property was never transferred (treat it like a re-finance)?

Do you think this could this be considered some form of tax-evasion, or is it legit?

Do you know of anyone else who has done something similar, or any court cases where a ruling was made on a similar situation?

 

[Dan_Eisenhauer]

You need to run this by your tax accountant. Most of us here are not qualified to give you advice on this. And your accountant knows your very personal situation.

Tax evasion, deliberately lying about your income or expenses, is illegal. Tax avoidance, legitimately increasing your expenses to reduce the amount of tax paid is legal, and sometimes encouraged.

Many investors move assets around in order to save taxes. If your accountant says go for it, although your suggestion may be "expensive", to use your word, it may be less expensive than not having the tax deductibility, especially if your consider the long term benefit.