No, you cannot deduct mortgage principal payments on rental property in Canada. The CRA only allows you to deduct mortgage interest, not the principal portion of your payments. This is an important distinction because your monthly mortgage payment includes both interest (which is deductible) and principal (which reduces the property's cost basis but does not lower your taxable rental income). Understanding this difference can help you accurately calculate your rental income and avoid overstating deductions. When you make a mortgage payment, you're doing two things: paying interest to the lender and paying down the loan balance (principal). The CRA treats these very differently for tax purposes. Mortgage interest is an expense tied directly to earning rental income. It's the cost of borrowing money to purchase or improve a rental property. Since it's directly related to producing income, it qualifies as a deductible expense. Mortgage principal, on the other hand, is a return of borrowed money. It's not an expense; it's simply paying back what you owe. The CRA views this as building equity in an asset, not as a cost of doing business. That's why principal is never deductible on your tax return.
Yes, you can deduct the interest portion of your mortgage payment. The principal portion is not deductible because it represents a return of borrowed funds rather than an expense of earning rental income.
Your mortgage lender provides an annual statement that breaks down the interest and principal portions. Ask your lender for this statement, or check your mortgage account online. Early payments lean heavily toward interest; later payments lean toward principal.
Mortgage principal builds equity in your property, but you cannot claim it as a tax deduction. The equity is a financial asset; the CRA only allows you to deduct actual expenses of earning rental income.
You can deduct mortgage interest, property taxes, insurance, utilities, maintenance, repairs, condo fees, property management fees, advertising, and professional fees. Generally, any cost directly tied to earning rental income is deductible.
The CRA may request your mortgage statement to verify the interest amount you claimed, especially during an audit. Keep your annual mortgage statements and payment records organized for at least six years.