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I have trouble understanding the rationale behind why certain things are tax deductible while other things are not. For example, I understand that RRSP contributions are tax deductible because I am not 'using' the money in my RRSP account, yet — it is for retirement.

But, why are the interest + taxes on my mortgage tax deductible? I cannot find any logic. By this token, any tax I pay on any services should be tax deductible.

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    You tagged "canada." But mortgage interest is not deductible there. Or so my friends to the north have told me. – JoeTaxpayer Sep 21 '13 at 18:33
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    JoeTaxpayer is correct. Generally speaking, no such deduction here in Canada, unless the mortgage interest represents carrying costs for other income-producing investments (not your residence.) – Chris W. Rea Sep 21 '13 at 18:42
  • You my want to consider this question at Politics.SE – Affable Geek Sep 21 '13 at 20:36
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Mortgage interest in Canada is not generally tax deductible for individuals. (Where did you read otherwise?)

As an individual, the only mortgage interest you may be able to deduct is when you borrow the money to purchase an income-producing asset, e.g another property you can rent out, or investments producing dividends or other income. In these cases, the interest you pay on the borrowed funds, i.e. the "carrying costs" for your investments, would be deductible against the income produced by the investments purchased.

  • Thanks...so only the property taxes are deductible? – Victor123 Sep 23 '13 at 14:31
  • @Kaushik No. Property taxes are also not generally deductible by individuals. As a homeowner, you may be able to claim a provincial income tax credit, but that's less than a deduction, and it isn't universal. If you own investment properties, the property taxes on those might be deductible vs. your rental income, but check with a tax pro if you need to understand precisely. – Chris W. Rea Sep 23 '13 at 15:13
  • @ChrisW.Rea - it is similar to that in Australia. What about if you are renting out one or more of your bedrooms, or you are running a business from your home - are you able to claim a part deduction on your mortgage interest and taxes in these cases? – Victor Sep 23 '13 at 22:11
  • @Victor Yes, those are cases where a partial deduction is possible. The key point I made is that there is no general deduction that everybody is entitled to. i.e. The simple act of owning one's home, by itself, doesn't qualify anyone to deduct mortgage interest or property taxes. There are a handful of special cases where it's possible. – Chris W. Rea Sep 23 '13 at 22:34
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Tax deductions, credits, and special rates are done for two reasons:

  1. Encourage a behavior:

    • Buy a house and deduct the taxes and interest
    • save for retirement and pay no tax on the growth until you pull the money out in retirement
    • Get a student loan and write off the interest.
    • Pay for health care via your pay check and the cost is pre-tax.
  2. Try to lower taxes for the poor/disadvantaged and raise taxes for the rich.

    • Cap a deduction if the gross income is over a certain amount
    • reduce property tax for the elderly.

Every one of these programs is in essence a loophole that has been established to meet a goal. They are hard to eliminate because some people use them and don't want them to go away. Of course everybody want some program they don't use to be eliminated as long as the rates for everybody else are also lowered.

  • Mortgage interest on one's principal residence is generally not deductible in Canada, except in situations like the ones in my answer. Otherwise your answer is fine re: why certain deductions exist. – Chris W. Rea Sep 21 '13 at 18:39
  • I have no idea what is deductible in any country but the US, but the answer why X is deductible but not Y is the same anywhere. – mhoran_psprep Sep 21 '13 at 21:08

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