The money homeowners forget to claim
Three little-known tax rules can save you thousands of dollars when you sell, buy or finance your home. Most people hear about them too late.
The 40 km rule: your brokerage commission becomes tax-deductible
If you move because of a new job, a transfer, a new business or full-time studies, and your new home brings you at least 40 km closer to your workplace, a good share of the transaction costs can be deducted from your income, both federally and in Quebec.
The 40 km rule
The conditions
- A new job, a transfer, a business or full-time studies in another location, in Canada.
- You move at least 40 km closer to that new location, measured by the shortest usual road route.
- The costs are paid by you, not reimbursed by your employer.
- The move can happen in a different year than the job change, as long as it results from it.
What can be deducted
- The broker's commission on the sale of your former home.
- Notary fees, advertising and the mortgage prepayment penalty.
- On the purchase: the notary and the welcome tax, if you sold the former home.
- Movers, storage, up to 15 days of temporary lodging.
- The costs of the former home left vacant (interest, taxes, insurance, heating), up to $5,000.
Fictional example: a family from Sainte-Rose
- Previous home → new workplace: 58 km.
- New home → new workplace: 6 km.
- Distance closed: 52 km.
Tax saved at a 45% marginal rate: roughly $23,000
Rounded amounts, for illustration. The deduction cannot exceed the income earned at the new work location; the balance carries forward to later years. Forms T1-M (federal) and TP-348 (Quebec). Keep all your receipts.
Changing jobs or work locations? Let's talk about it before you put your home on the market.
Cash damming: making your mortgage interest deductible
In Canada, the interest on your home mortgage is not deductible. But if you are self-employed or own a revenue property, a method recognized by the Supreme Court and the Canada Revenue Agency lets you gradually turn that personal debt into business debt.
How it works
- Your business income, or the rent from your plex, goes toward paying down your home mortgage faster.
- Your business or building expenses are paid with a home equity line of credit.
- The interest on that line of credit is used to earn income: it becomes deductible.
- After a few years, the non-deductible debt has shrunk and deductible debt has taken its place.
Ballpark figures (fictional example)
This strategy should be set up with an accountant or a tax specialist.
Buying a plex or working for yourself? We can structure your purchase with this in mind right from the start.
The FHSA: the best account for building your down payment
The first home savings account combines the best of the RRSP and the TFSA. Your contributions lower your taxes, and the money comes out tax-free when you buy.
FHSA
The basic rules
- $8,000 in contributions per year, up to $40,000 in total, per person.
- Unused room carries forward, up to $8,000 more the following year.
- Room only starts building once the account is open: open it early, even with $0.
- Being a first-time buyer: not having lived in a home you or your spouse owned, this year or in the previous 4 years.
Fictional example: a couple targeting a $1,000,000 home
$200,000 is the 20% down payment on a $1,000,000 home, which avoids mortgage loan insurance.
Thinking of buying within 1 to 5 years? We will build your down payment plan together.
General information only, not tax advice. Confirm your situation with your accountant or tax specialist.
