How to do this correctly, step by step
The strategy lives or dies on clean execution and clean records. These steps keep the tax deduction solid if the CRA ever asks questions, and keep the plan on track. Your accountant confirms the tax side at every stage; the workbook above keeps the paper trail ready for them.
Get the right mortgage structure in place
The strategy needs a re-advanceable mortgage: a mortgage and credit line combined in one product, where paying principal automatically frees up borrowing room. If your mortgage is a plain mortgage, the structure is usually set up at renewal or through a refinance. Ask for a brand-new HELOC sub-account that starts at zero and is used for nothing else.
Move borrowed money in a straight line
Every borrowed dollar should travel directly from the dedicated HELOC account to the investment account. Never route it through a chequing account where it mixes with paycheques or other money. The tax rules care about tracing each borrowed dollar to where it went, and a clean straight line is the easiest trail to prove.
Invest it in a non-registered account, in income-producing investments
The account must be non-registered. RRSP, TFSA and FHSA contributions do not qualify for the interest deduction. The investments should be chosen with the expectation of earning income such as dividends or interest; your advisor helps pick them and your accountant confirms they support the deduction.
Pay the HELOC interest from your own cash flow
The monthly interest bill is paid from your regular cash flow, not by borrowing more. Keep every monthly HELOC statement; the interest actually charged on those statements is the number your accountant uses, not an estimate.
Track every draw, every purchase and every interest charge
This is what the downloadable workbook is for. Each borrow, each investment purchase and each month of interest gets one line, written down when it happens. At tax time the workbook totals everything and pairs it with the documents your accountant needs.
Claim the deduction with your accountant at tax time
Your accountant claims the interest on your income tax return (it goes on line 22100). They confirm the amount from your HELOC statements, check that every borrowed dollar still traces to the investments, and file it. The refund that comes back can then be put on the mortgage to speed up the loop.
Re-check the plan once a year
Each year, confirm the HELOC stayed dedicated to investing, watch fund distributions for return of capital, and re-run the numbers with real rates and balances. If anything changed, your accountant adjusts the deductible amount before filing.
Is the HELOC interest always tax-deductible?
No. Interest is generally deductible only when the borrowed money is used to earn income from investments held in a non-registered account, the use can be traced directly, and the purpose holds over time. Mixing the HELOC with personal spending, or moving money through accounts where it blends with other funds, can put the deduction at risk. An accountant confirms deductibility before you start and every year at tax time.
What happens if markets drop?
The investments fall in value but the borrowed HELOC balance stays exactly where it was. That is the core risk of borrowing to invest: it magnifies losses as well as gains. Use the market-drop slider in the calculator to see it in your own numbers, and only proceed if a drop would not force you to sell or strain your cash flow.
What is return of capital and why does it matter?
Some funds pay distributions that include return of capital, meaning part of your own money is being handed back rather than earned income. If that portion is spent instead of being reinvested or applied against the loan, the matching slice of the borrowing may stop being deductible. It is one of the quiet ways this strategy goes wrong, which is why the workbook tracks distributions and your accountant reviews them.
Do I need to sell any investments to start?
No. This strategy borrows new money as your mortgage is paid down. If you already hold investments outside registered accounts, a different move called a debt swap may also be worth looking at; there is a separate calculator for that at wearemortgages.ca/debt-swap.
Who should not use this strategy?
Anyone whose monthly budget is already tight, anyone who may need to sell the investments within a few years, and anyone who would lose sleep carrying investment debt against their home. The interest bill arrives every month whether markets are up or down. It is a long-horizon strategy for people with stable cash flow and a real tolerance for risk.
Educational information only, not tax, legal, investment or financial-planning advice. Interest deductibility depends on your facts and the rules in effect when you file; the Canada Revenue Agency assesses each situation on its own. Work with an accountant and a licensed investment advisor before borrowing to invest.