Make part of your mortgage tax-deductible.
Own a rental and a home with a mortgage? Your rent can pay your home off years faster while your rental costs turn into tax deductions.
How it works, live with your numbers
1
Your rent comes in
Every month your tenant pays you.
Rental income / yr
$
$2,500 a month goes straight onto your home mortgage.
2
It pays your home down
All of it lands on the mortgage that saves you nothing.
Home mortgage
$
Rate
%
Your $600,000 mortgage is gone 14.2 years sooner.
3
A line pays the rental bills
Property tax, condo fees, repairs: paid from a dedicated line of credit, not your pocket.
Rental expenses / yr
$
Line rate
%
$20,000 of rental bills a year now paid with borrowed money.
4
That interest saves you tax
Borrowed money that runs a rental is tax-deductible. Your debt moved to the side the CRA rewards.
Your tax bracket
At your bracket that is $4,656 back every year by year 15.
Tax saved / 15yr
$44,811
illustrative
Deductible built
$216,667
by yr 15
Mortgage sooner
14.2 yrs
vs no strategy
Recurring / yr
$4,656
on the balance
Illustrative only. Your accountant confirms deductibility for your facts; the deduction comes from borrowing to pay rental expenses, not the rental income.
Common questions
What is cash damming?
Cash damming is a CRA-recognized cash-flow strategy that converts non-deductible debt into deductible debt. You apply your rental income to your non-deductible home mortgage, and pay your rental expenses from a dedicated line of credit instead. Because that borrowed money earns rental income, its interest is tax-deductible. Over time your debt shifts from the non-deductible side (your home) to the deductible side (the line), and the refunds accelerate the whole thing.
Is cash damming legal in Canada?
Yes. The Canada Revenue Agency names the practice in Income Tax Folio S3-F6-C1, Interest Deductibility, and the deduction rests on paragraph 20(1)(c) of the Income Tax Act. The Supreme Court of Canada confirmed in Singleton v. Canada (2001) that a taxpayer may arrange their borrowing so the interest is deductible. It works when the borrowed money genuinely earns income and the funds are kept cleanly traceable in a dedicated account. Your accountant confirms deductibility for your specific facts.
How is cash damming different from the Smith Manoeuvre?
They share the same engine: convert your non-deductible home mortgage into deductible debt using a readvanceable line of credit. The Smith Manoeuvre uses the borrowed money to invest in a portfolio; cash damming uses it to pay the operating costs of a rental property or unincorporated business. Cash damming suits landlords and sole proprietors; the Smith Manoeuvre suits investors.
Does cash damming make my rental mortgage interest deductible?
No, and this is the most common misunderstanding. Interest on a mortgage used to buy a rental is already deductible. Cash damming makes your HOME mortgage effectively deductible: by paying rental costs from a line of credit and using the rent to prepay the home mortgage, your non-deductible home debt is gradually replaced by deductible line-of-credit debt.
Do I need a rental property to use cash damming?
You need income-earning activity to point the borrowing at: a rental property, or an unincorporated business or professional practice (common for physicians and other sole proprietors). You also need a non-deductible mortgage on your own home to convert, and a readvanceable mortgage or line of credit set up correctly.
Which lenders work for cash damming in Canada?
Any readvanceable mortgage can work: Manulife One, National Bank All-in-One, Scotiabank STEP, TD Home Equity FlexLine, and RBC Homeline among them. The difference is how the line-of-credit interest is handled. An all-in-one account like Manulife One capitalizes it into one balance automatically; other products bill an interest-only minimum that is covered by a small monthly draw from the line. Choosing and setting up the right product is the core of the work.
Will cash damming increase my audit risk?
Claiming interest against rental or business income is one of the most ordinary lines in the Canadian tax system (Form T776, line 8710 for rentals). The strategy stands or falls on records: a dedicated line used only for the income property, no personal draws, and a clean paper trail. Kept that way, an audit is a paperwork exercise.
What happens to my debt when the home mortgage is paid off?
That is the goal: your non-deductible home mortgage reaches zero years early. From there you choose. Pay the deductible line down with the freed-up payment, keep it working (its after-tax cost is low) while you invest, or use the room to buy the next property. Selling the rental would clear the remaining debt at once.
Does cash damming make money right away?
No. It builds over time. The deductible balance grows each year, so the tax refunds start small and compound, while your rental income pays your home mortgage down years early. It is a long strategy measured over a decade, not an instant refund.
This page is mortgage structuring and education, not tax, legal, or accounting advice. Whether interest is deductible depends on your specific facts and is determined by your accountant and the Canada Revenue Agency. The strategy is described in CRA Income Tax Folio S3-F6-C1 and rests on Income Tax Act 20(1)(c). It only works when the borrowed money genuinely earns income, the funds are kept cleanly traceable in a dedicated account, and proper records are kept. All figures shown are illustrative examples and your results will differ. Confirm with a qualified accountant before acting, and involve a lawyer for any title, ownership, or security matter.