Let's say I have a monthly mortgage payment of $1600 on a condo I own, and the condo is rented out for $1600. Then, I'm breaking even. Hence, I would not need to pay any tax on my rental income. Would that be correct?


Generally incorrect.

Some of your mortgage payment is interest, and some is repayment of principal. When it comes to deducting your rental property's expenses against its income, you generally aren't permitted to deduct the repayment of loan principal.

So, no, $1600 rent and $1600 mortgage payment (ignoring all else) is not break-even — rather, you are profiting to the extent that your rental property's mortgage principal is being reduced. That profit is taxable income, even if your cash flow hasn't benefited. Otherwise, you could "break even" this way in perpetuity and at the end of the mortgage have a property paid for fully in tax-free dollars! Nope.

(I said "generally" at top because the possibility of an interest-only loan does make the entire payment interest, but I mention this merely for completeness and not because it is likely to apply.)

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    I was writing a response, but Chris's covers most of my points, and is accurate. blog.turbotax.ca/… covers what you can and cannot deduct, and points out mortgage payments as an example of what you cannot deduct. – ChrisInEdmonton Nov 4 '14 at 14:09
  • Note that the info I have says that you cannot deduct mortgage interest, though you can deduct interest on loans to improve the rental property. – ChrisInEdmonton Nov 4 '14 at 14:10
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    See Form T776, Statement of Real Estate Rentals - Line 8710 - Interest .. quoting: "You can deduct interest on money you borrow to buy or improve your rental property.". Bold emphasis mine. But I would expect the situation differs if the "property" one is renting out is part of one's own home. The case I'm assuming in my answer is a property that is strictly an investment/rental property and not claimed as principal residence by the owner. I think your link to turbotax.ca agrees with the CRA link I mentioned. – Chris W. Rea Nov 4 '14 at 19:44
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    There is also the matter of expenses - painting the unit between tenants, any utilities the tenants don't cover, advertising the unit, etc. Plus of course condo fees. There is a worksheet at cra-arc.gc.ca/tx/bsnss/tpcs/rntl/bt/rprt/menu-eng.html that walks you through what is ok and what is not. – Kate Gregory Nov 19 '14 at 20:01
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    @ChrisW.Rea you can deduct mortgage interest on your own home - the share of it that applies to the part rented - and I have done so. You can't deduct interest on a mortgage you took out for some other purpose like a vacation or to buy a cottage, just because you happen to have income from the mortgaged property. – Kate Gregory Nov 19 '14 at 20:06

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