Cash Damming

A CRA-recognized way to convert non-deductible personal mortgage interest into deductible rental-expense interest. The mechanic: the rental's monthly income flows to the personal mortgage as a prepayment, and that same dollar amount is drawn from a HELOC sub-account dedicated to the rental, covering the rental's own costs (property tax, insurance, maintenance, management, and its own mortgage payment). Same dollars in and out, completely different tax outcome.

The legal basis is Income Tax Act paragraph 20(1)(c): interest on borrowed money is deductible when the funds are used to earn income. By routing rental opex through a HELOC, the HELOC interest becomes deductible against rental income on T776. The tax refunds flow back at the personal mortgage, which compounds the acceleration.

Lives or dies on tracing. One personal expense run through the rental HELOC contaminates the deduction. Full mechanic: Rental Cash Damming strategy. Walk-through with numbers: Cash Damming for Canadian Landlords.