Cash Damming: Convert Your Mortgage to a Tax Deduction
Cash damming is a Canadian tax strategy for self-employed individuals, landlords, and business owners. It systematically converts non-deductible personal mortgage debt into tax-deductible business debt.
While the Smith Manoeuvre works for any homeowner, cash damming targets those with ongoing business or rental expenses — and in many cases, produces faster results.
Cash Damming Calculator
Enter your mortgage and monthly business/rental expenses to see your potential tax savings.
e.g. utilities, insurance, supplies, rental property costs
How Cash Damming Works — Step by Step
Cash damming works best for self-employed individuals, landlords, and incorporated professionals who have regular business or rental expenses they're already paying out of pocket.
Identify Your Monthly Business / Rental Expenses
These are expenses you already have: office supplies, professional fees, utilities for rental properties, vehicle costs, insurance, software subscriptions, etc. These must be legitimately deductible business expenses — you can't invent them.
Open a Dedicated Business Line of Credit (LOC)
Set up a business or investment line of credit with your bank. This is separate from your mortgage and HELOC. Going forward, all business expenses are paid from this LOC — not from your personal cash.
Direct Your Personal Income to the Mortgage
Instead of your paycheque covering both personal expenses and business costs, all your income now goes directly to pay down your mortgage (non-deductible debt). This accelerates mortgage paydown.
Pay Business LOC Interest — It's Deductible
The interest on the business LOC is fully tax-deductible because the borrowed funds were used for an income-earning purpose (your business or rental property). You claim it on your T2125 (business) or as a rental expense (T776).
Repeat Every Month
Each month, more of your debt shifts from non-deductible (mortgage) to deductible (business LOC). Over years, the strategy converts a large portion of your mortgage debt into a tax-deductible obligation, effectively reducing your after-tax cost of borrowing.
Accelerate with Tax Refunds
Your annual tax refund from the deductible business interest can be used for a lump-sum mortgage payment, accelerating the cycle. Some homeowners also layer cash damming with the Smith Manoeuvre to maximize both investment growth and debt deductibility.
Who Should Consider Cash Damming?
- Self-employed Canadians with $1,000+ in monthly deductible business expenses
- Landlords who pay rental property operating costs out of pocket
- Incorporated professionals (doctors, lawyers, consultants) with a personal mortgage and business expenses
- Farmers with ongoing deductible agricultural expenses
If you're a salaried employee with no business or rental income, cash damming doesn't apply to you — consider the Smith Manoeuvre instead.
CRA Rules: Keeping the Deduction Clean
CRA's position (Income Tax Folio S3-F6-C1) is that interest is deductible when the borrowed funds are used for an income-earning purpose. Cash damming satisfies this because the LOC funds are used for legitimate business/rental expenses.
Critical rules to follow:
- Keep the business LOC completely separate from personal accounts — never mix personal and business transactions
- Document all LOC withdrawals with matching business expense receipts
- The expenses must be legitimately deductible under the ITA (no personal expenses)
- Consider working with a CPA who has specific cash damming experience