# UK rental income in a Canada - interest as a deductible?



## Canadenglish (Mar 5, 2019)

Hi all, trying to work out the situation with rental income from the UK and tax in Canada - with specific regard to mortgage interest as a tax deductible.

In the UK this is being phased out as a deductible (for example 50% is taxable and 50% is deductible for 2018/19).

I won’t owe any tax in the UK regardless of this because my income is less than outgoings and I make a small loss (I know I can claim this as a deductible in future years).

However, when to comes to filing in Canada where of course I WILL pay tax on my rental income, would I be able to claim the whole interest as tax deductible or does it have to match UK?

ie in the tax year 2020/21 when 100% of mortgage interest is taxable and no longer claimable as a deductible in the UK, what is Canada’s stance for when I come to declare it as foreign income?

Hopefully someone can answer as last tax year was 25% taxable and 75% deductible so we should already be able to see if Canada still lets UK citizens deduct all mortgage interest on Canadian returns even if we can’t in UK.

Thank you!


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## Nononymous (Jul 12, 2011)

I don't have expertise to address how this plays out in UK vs Canada terms, but I would expect that the rental income must be first declared in the UK, and any taxes paid in the UK, since that is where the property is located, rather than Canada. Is that not the case? Then on the Canadian return you'd declare the rental income but offset any Canadian taxes owing with UK taxes paid.

Canada's treatment of mortgage interest on a rental property is pretty straightforward. You write off 100 percent of the mortgage interest against rent received, just as you would write off property taxes, insurance, maintenance and management expenses. Whatever remains as profit is taxable income, either for you personally or the business, depending how you've set things up.

After re-reading your question I think I see what you are asking: would Canada follow the UK rules for mortgage interest deductions on UK properties? I don't believe so. I expect it would be consistent for both domestic and foreign properties. But you may want a professional opinion on this.

If the rental is making a loss you should not owe any Canadian taxes for that income. I don't know if you can use the loss to actually reduce your Canadian tax bill. You certainly can if the property is located in Canada, but I don't know about foreign. Again, you might want professional advice.


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## Canadenglish (Mar 5, 2019)

Thanks for the response.

Even if I was making an actual profit, even a small one, I still get my personal allowance in the UK so I wouldn't pay tax on it no matter much or how little of mortgage interest in tax deductible. I am doing the UK return regardless as I still need to declare it.

Therefore, I will have paid no tax in the UK so have no tax payments to deduct from Canadian returns when I declare it in Canada.

I was just wondering if, because mortgage interest will eventually NOT be a tax deductible in the UK, if Canada will use the UK rules on UK property income declared over here.

Basically if I can't claim mortgage interest as a tax deductible I'll probably sell my flat...

Unsure as to how losses work, but I'm pretty sure Canada still taxes you on income regardless?


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## Bevdeforges (Nov 16, 2007)

I admit that I have no experience with Canadian taxes, but in general terms, it's exceedingly rare that the income tax laws in one country require you to follow the rules of another country. And mortgage interest is a pretty much standard "expense" of renting out a house or property in general. 

The fact of the mortgage interest only being partially deductible in the UK should have no real influence on how the Canadian government wants you to treat it.


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## Nononymous (Jul 12, 2011)

Canada would not follow the UK rules in terms of mortgage interest deduction, of that I'm fairly certain. Canada would follow the Canadian rules even if the property were located in the UK. 

If there's a loss, there is no income to tax. (You are not taxed on the rent you receive - that's revenue. You are taxed on the income from the property, a.k.a net profit, which is revenue minus expenses.) The question is whether you could use that loss to reduce your total Canadian income, and therefore your total Canadian tax bill. You can do that if the property is located in Canada. I see no reason why you couldn't do it with a property in the UK, but perhaps there are different rules for foreign properties.


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