The Business Owners Guide To Making Your Mortgage Tax Deductible

As a business owner you know all to well how difficult it is to be doing everything right.

Right?

Still we try. We must to succeed.

However, there are only so many hours in the day and to be continually productive and working at peak efficiency we use leverage to make it all happen.

We leverage other people’s time and knowledge and expertise to get things done. (Remember, if you don’t have the time, inclination and/or experience or expertise – outsource it – hire it out to those that do have the skills you lack or need.)

The reason I bring this up at all is that when a simple strategy – like this one – is presented many business owners often get upset with their advisors – believing that they should have been informed.

However, this may not be happening for a number of reasons:

Not everyone knows everything!

Your stock broker, mutual fund person and life insurance agent each have specific skill sets – and may not understand this strategy unless they are related to the various investment products that they handle for you.

Your accountant’s responsibility is to keep track of your company’s cash and financial status – they probably don’t know about your personal situation – let alone your mortgage. The very nature of their training and profession (and often personality) makes them reactive not proactive. As “bean counters” providing valuable services, their job is to take the information that we give to them and slot the numbers into the appropriate columns and report back on the financial health of your company.

However, this is all “after the fact” stuff.

In fact, most of the time bankers are not even aware of how to make the interest on your mortgage tax deductible.

Why do you ask would they not know? After all they are in the mortgage business.

Well, yes and no.

The banks and by extension bankers are in the money lending business. They purchase money wholesale and sell it at retail! That’s what they do and they do it so successfully that bank profits are huge each and every year.

What’s the banks solution? Nothing more creative than suggesting to you to switch from monthly payments to bi-weekly payments and/or bi weekly accelerated payments.

All this does is making you use more of your after tax dollars to make over payments on your mortgage.

However, the sad fact is that this is simply more after tax money out of your pocket.

Yes, we need them and their services but do not look to them for financial planning advice!

A qualified and experienced financial planner is the “go to” person for this information.

Why?

Because it is their role to ask the questions, look at your whole picture and to integrate your business and your personal resources.

Remember, you are in business to make money. Hopefully a ton of it so as to make your personal life more enjoyable! Right? Well, right?

Now, this simple but highly effective strategy – once implemented makes the mortgage interest on your home tax deductible.

So, the question to you is: Do you have a shareholders loan that is greater than or equal to the mortgage on your home?

If you do, then follow along.

Make sure to maintain a simple paper trail for the process to make your mortgage tax deductible…

For Incorporated Companies

Here’s how:

1. Have your business corporation take a loan from the bank equal to your shareholders loan.
2. Your corporation will then use the borrowed money to pay off your shareholders loan. Now, this money is tax free in your hands.
3. Use this money to pay off your mortgage
4. Take out a new mortgage on your home. Use the proceeds to invest into your corporation thereby, creating a new shareholders loan.
5. Your company will then use these monies to repay the bank loan it made to pay you off in the first place.

Got it? Great!!!

Now go do it…so you begin to be “laughing all the way to the bank”.

For Unincorporated Companies

As you are unincorporated – for tax purposes – you are “one and the same” with your company.

So, borrow the money required to pay your business expenses. This will free up an identical amount of the cash you have taken in as receipts into your business. Use this matching amount of money to make extra payments on your house mortgage. If your business averages expenses of $3,000 per month, then you will be paying your mortgage down an extra $3,000 per month. (Caution: The income you draw from your business to pay yourself is not treated as a business expense, for tax purposes.)

Here’s how:

1. First off, at the end of each month, total up all of the qualifying expenses that directly relate to your business. (Remember to be precise and to keep good records.)

2. Then, write a cheque against your “Investment (LOC) Line of Credit” for that very same amount. (The “Investment (LOC) Line of Credit” will be the one registered against your principal residence). On the check “memo” line, write “Company Expenses” and make it payable to your business, deposit this check into your business account and pay your business expenses with this money.

3. The next step is to write a cheque from the business account payable to yourself for the total amount of the expenses. On the check “memo” line, write “Draw – re: Business Expenses”.

4. Now, deposit that cheque into your personal chequing account. From that account you will be paying down your first mortgage by the same amount. This will be another payment over and above your regular monthly mortgage payment.

(Note: Some banks will not accept monthly lump sum over payments so put the money in a separate savings account. Pay out that account on the date your lender allows for the annual “penalty free” overpayment.)

On a side note; if you have a rental property it is likely that you are essentially running an unincorporated business – a proprietorship or a partnership – so you should borrow to pay the expenses and use a matching amount of the rent you receive each month to make an overpayment on your house mortgage and watch mortgage melt away…

Here’s another strategy to consider!

Maybe you have non registered investments (not RRSPs) that are equal to or greater than your current mortgage. Make your mortgage tax deductible by doing the following:

1. Cash out your investments.
2. Use the money to pay off your mortgage.
3. Get a new mortgage
4. Borrow against the security of the new mortgage for investment purposes.

Congratulations, you have just made your mortgage – tax deductible!

Note: Make certain that the new mortgage acts as security and in fact was needed by the bank to secure your loan to buy investments. Also, make sure to purchase new investments with the new money. Why? Something called the “superficial loss” rules. However, if you are determined to buy back the very same security/ investments you must wait 31 days so as not to trigger these rules.

We trust that this report opened up your eyes to the creative and legal possibilities of dealing with your mortgage.

You are holding a blueprint to your success in your hands right now!

However, any information will be useless to you unless it is acted upon!

So now, what’s your next step?

Make today the day you took positive action to make your mortgage tax deductible.

The Next Step Is Yours.

For more information contact us today!