Is Your Alberta Mortgage Tax-Deductible? The Secret Strategy to Making it Happen (Part 1)

February 2, 2026 | Posted by: Matt Broom-Hall

Is Your Alberta Mortgage Tax-Deductible? The Secret Strategy to Making it Happen (Part 1)

Here's a question that surprises most Alberta homeowners: Did you know there's a perfectly legal way to make your mortgage interest tax-deductible?

Yeah, I know what you're thinking. 'Matt, that's an American thing. We're in Canada. Nice try.'

But here's the truth: Canadian mortgage interest CAN be tax-deductible, you just have to set it up the right way. And no, it's not some sketchy loophole that'll get you audited. It's a CRA-approved strategy that thousands of Canadians use to get annual tax refunds worth thousands of dollars.

Most people I talk to in Calgary and Edmonton assume one of three things when I bring this up:

1. It's not legal.
2. It's too risky.
3. It's way too complicated.

I'm here to tell you that none of those fears are warranted. What's more, many Alberta homeowners could rearrange their financing today and start making their mortgage interest tax-deductible almost immediately.

So why don't they? My theory? A lack of information and good old-fashioned inertia. And that inertia might be costing you thousands in tax refunds every year.

Today's post is Part One of a two-part series that's going to lay out the facts and let you decide for yourself whether this strategy makes sense for your situation.

First Things First: Yes, It's Legal

Let's get the legal stuff out of the way so you can breathe easy.

According to the Canada Revenue Agency (CRA), if you borrow money 'for the purpose of earning income from a business or property,' then the interest cost is tax-deductible. The key is that you need a 'reasonable expectation of income' from the investment, whether that's interest, dividends, rental income, capital gains, or a combination.

This isn't new territory. The CRA has been crystal clear on this, and the Supreme Court of Canada has ruled in favour of mortgage interest deductibility in two landmark cases:

• Singleton v. Canada (2001)
• Lipson v. Canada (2009)

Both of these cases confirmed that Canadians can legally structure their borrowing to make mortgage interest tax-deductible. So rest assured, you're not breaking new ground here. You're just playing by the rules that already exist.

How Does This Actually Work?

Alright, now that we've established this is legit, let's talk about how you can actually pull this off. There are three main strategies, and which one works for you depends on your current financial situation.

Strategy #1: The 'Clean Slate' (For Homeowners with No Mortgage)

This is the simplest scenario. Let's say you own your home outright: no mortgage, no debt. You'd apply for an investment loan using your house as collateral. The bank advances you the money, you invest it (and I strongly recommend partnering with a top-tier financial planner for this), and when you file your taxes at the end of the year, you include the interest paid on your investment loan as a deductible expense.

Here's an example:

You borrow $300,000 against your paid-off Calgary home and invest it. Let's say your interest rate is 5%, and you pay $15,000 in interest over the year. If your marginal tax rate is 40%, your tax refund would be $6,000 ($15,000 x 0.40).

Same house. Same loan. But now the government is cutting you a cheque every April.

Strategy #2: The 'Swap' (For Homeowners with Investments AND a Mortgage)

This strategy is for folks who have both a mortgage and an investment portfolio. The goal is to convert your non-deductible mortgage debt into deductible investment debt.

Here's how it works:

Let's say you have a $300,000 mortgage and $300,000 in investments. You sell your investments, pay off the mortgage, and then re-borrow the $300,000 the next day using a readvanceable mortgage. Thirty days later (in accordance with CRA rules), you repurchase the same investments.

What just happened? You still have a $300,000 loan secured against your Edmonton home, and you still have a $300,000 investment portfolio. But now, the interest on that loan is tax-deductible.

Using the same math as before: if your marginal tax rate is 40% and you're paying about $14,706 in interest in the first year: your tax refund would be roughly $5,882.

Everything is the same, except you're getting a big refund cheque from the CRA every spring.

A word of caution: Before you sell investments, make sure you're not triggering capital gains tax that you could otherwise delay. This is where a qualified financial planner becomes essential. The good news? With recent market volatility, many portfolios have capital losses that can actually be useful to trigger right now.

Strategy #3: The 'Smith Manoeuvre' (For Homeowners with 20%+ Equity)

Now, this is where it gets really interesting: especially for those of you who don't have a big investment portfolio sitting around.

The Smith Manoeuvre (named after financial planner Fraser Smith, a true pioneer in this space) allows you to convert your existing mortgage debt into deductible debt over time, without needing a lump sum of cash or investments upfront.

Here's the setup:

You need a readvanceable mortgage, basically, a mortgage combined with a home equity line of credit (HELOC). The key feature is that every time you pay down your mortgage principal, your HELOC limit increases by the same amount.

So here's what you do:

1. Make your regular mortgage payment.
2. Immediately borrow back the portion of that payment that went toward principal using your HELOC.
3. Invest that borrowed amount.
4. Pay the interest on the HELOC first, then invest the remainder to keep it cash-neutral.

Over time, as your mortgage shrinks, your HELOC and investment equity grow by the same amount, gradually converting your loan from non-deductible mortgage debt to deductible investment debt.

And here's the kicker: When you get your annual tax refund, you can use it to further pay down your mortgage, which accelerates the whole process.

Why This Strategy is a Game-Changer

Most Canadians plan to pay off their mortgage first, then start building an investment portfolio. But here's the problem: it takes decades to pay off that much debt. And the earlier you invest, the longer you benefit from compounding: which is the real magic in wealth-building.

Fraser Smith wrote in his book that two-thirds of the benefit comes from owning your investments now instead of later. About one-third of the benefit comes from converting to tax-deductible interest.

Think of it this way: Instead of building equity in your home and paying non-deductible interest, you're building equity in a diversified investment portfolio, paying deductible interest, and investing your tax refunds.

And if at some point you want to decrease your overall debt and reverse this strategy? No problem. You can simply sell some or all of your investments and use the money to pay down your mortgage.

Where Hello Mortgage Fits In

Here's the thing: This strategy only works if you have the right mortgage product in place. Not all readvanceable mortgages are created equal. Some have restrictions, higher rates, or clunky structures that make the Smith Manoeuvre harder to execute.

That's where we come in. At Hello Mortgage, we help Alberta homeowners identify the best readvanceable mortgage products on the market and build a personalized strategy that fits your financial goals. Whether you're in Calgary, Edmonton, or anywhere in between, we'll walk you through the setup, connect you with trusted financial planners, and make sure your mortgage is working for you: not against you.

What's Next?

Today we covered the basics: the legal foundation, the mechanics of how a tax-deductible mortgage works, and three strategies you can use depending on your financial situation.

But I know you've got questions. Who is this strategy best suited for? What are the risks? How do I know if I'm ready?

That's exactly what we're covering in Part Two, which drops next week. I'll walk you through real-world examples, common questions, and help you figure out if making your mortgage tax-deductible is the right move for your situation.

Until then, if you want to explore whether a readvanceable mortgage makes sense for you, reach out to us. We'll sit down, look at your numbers, and figure out the best path forward.

Stay tuned for Part Two( this is where it gets really practical.)

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