Tax question ?

[Jamaica-luvr]

An opinion is required, gentlemen.

I currently hold a mortgage on a piece of property I aquired through an inheritance. I have been declaring the interest portion of the monthly payment as income, which has has meant a pretty big hit at year end.

Someone has told me I can offset this income by claiming the interest portion of my mortgage payment on my principle residence as an expense.

Or...

Can I "transfer" some of this income to my long-time common-law partner (who makes less money, and has lots of room in her RRSP), have her claim it, make a contribution to her RSSP to offset it, and get a large refund for her, which we then share.

Obviously, I would rather pay into a RRSP for her(with me as beneficiary) than pay those fiscally responsible folks in Ottawa.

 

[scrooge]

Without being harsh, you should really get your facts straight. I can't even make out what you are saying. Are you both the mortgagor and mortgagee? I am assuming the "I acquired through an inheritance" part refers to the mortgage and not "a piece of property".

You know, this is the type of question you should get professional help for. Not what everyone says here on the topic of tax is accurate or correct - so you have to take it with a grain of salt anyway. Frequently, the advice you get is worth what you pay for them.

If it is such a "big hit", pay $500 and get one or two hours of advice from a tax accountant or lawyer.

 

[jaykraus242]

Buy High! Sell Low! Or something like that anyway..... Really I mean it

 

[fuji]

Talk to an accountant, they may have some good ideas. Taxes are complicated and it's worth getting good advice.

What I do know is that you cannot deduct the interest on mortgage payments for your primary residence in Canada. In the US you can, but not here. You can deduct interest on the mortgage of an investment property that you rent out to someone else.

In terms of splitting the income with your common law partner there may be ways to do that, such as by having the property owned by a corporation you both have shares in, or some such, talk to an accountant... it MAY be too late, since you already have set up the ownership rules, but then, I am not an accountant, and it's an accountant you need.

 

[tboy]

What they said ^^^^

But if I understand correctly, JL acquired the property through an inheritance and has sold it to someone and holds the mortgage on that property.

In any case, the interest you are receiving is a capital gain (I believe) but from that capital gain, you have to deduct any expenses you have as the lender: ie admin costs, bank charges, etc as there are costs associated with holding a mortgage.

Why don't YOU make rrsp contributions to make up for some of the interest income? There are also other secure tax deductible investments that you can deposit into, Canada Savings bonds (I think they are tax deductible). You can also but quite a whack of that interest income into RRSPs. I don't know what your income is so I can't tell you how much you can sock away.

You cannot claim any portion of your principal residence mortgage unless you are using your home as an office. Then you can only deduct the amount of time you spend in that residence doing business.

I don't think you can transfer any income to your common law wife. You can however give her a one time gift tax free or transfer the mortgage into her name somehow, but you better trust her implicantly.

As stated, talk to a tax accountant. That way you will get the semi-straight scoop (because there aren't many accountants that fully understand our tax system).

 

[scrooge]

Tboy, I think you need to devote some of the carpenter $$$ and take the H&R Block tax return prep course!!!

 

[elmufdvr]

if it is a big hit on you at tax time..you should remit taxs during the year for the money coming in...as for the rest?l who the f@ck knows
... spend some cash and get some real advice..you should have an accountant most people don't and should... when in doubt i pick up my phone and call my accountant...he earns his money ten fold ... as important as a good financial planner

 

[lasslicker]

Sell the mortgage you have inherited and use the proceeds to pay off the one on your principle residence.

You will have less taxable income and no mortgage payments to make.

 

[dreamer]

The trick to making your principal residence mortgage tax deductible is to restructure that debt. In your case it would mean taking out a mortgage on the property you inherited to pay off your residential mortgage. But you no longer own the inherited property, you own the mortgage.

You could sell the mortgage and payoff your residential one.

Then take out a line of credit on your residential property and invest those funds in something else. And guess what, the line of credit interest is tax deductible when you use the funds to invest. However interest borrowed to invest in RRSP's are not tax deductible, so use excess cash for that and only use the line of credit to invest.

 

[alan9080]

With respect to your first question, NO, you cannot deduct interest expense on your principal residence. For your second question, since you have inherited the mortgage, Under the inheritance law your common-law would not be able to take half of the mortgage if you go separate ways. I would think twice before transferring half of the ownership to my common-law unless you know that she will be with you forever.

 

[scrooge]

However interest borrowed to invest in RRSP's are not tax deductible, so use excess cash for that and only use the line of credit to invest.

Prohibition on interest deductibility on debt incurred to make an RRSP contribution is based on CRA's position only. There is not a specific prohibition either in the tax act or stated in case law.

However, I would not advocating anyone to challenge this position.

 

[K Douglas]

Answer to the first question is no you can't. There is no deduction you can take against this interest earned unless you were in the business of lending, which I'm assming youre not.
Answer to the 2nd question is no you cannot split the income, it was your inheritance.
It seems you have a classic case of one spouse making significantly more income than the other. There are ways to income split, you should seek the advice of a professional accountant, its worth the $200-250 per hour.