Rental Cash Damming FAQ: Common Questions Answered

It's a way of putting the rent you already collect to work on the debt on your home. Each month, your rental income goes toward your home mortgage as an extra prepayment, and your rental's bills are paid with money borrowed from a separate line of credit that's used only for the rental. Over time, the debt on your home shrinks and is replaced by borrowing used for your rental. Interest on that rental borrowing may be deductible, depending on your situation. You may also hear it called the Cash Flow Dam, a term from the Smith Manoeuvre. What is cash damming? →

Your rental income lands in your rental income account, and from there it goes toward the mortgage on your home. Because your mortgage is readvanceable, every dollar of principal you pay down becomes available again on a line of credit linked to your mortgage. You draw from that rental line of credit into your rental expense account, and that account pays the rental's bills. Your total debt stays about the same; what changes is what the debt is being used for. How cash damming works →

It comes down to what the borrowed money pays for. With rental cash damming, it pays your rental's expenses, so you need a rental property. With the Smith Manoeuvre, the principal you pay down on your home is borrowed back and invested, which means taking on market risk. The two can run side by side, with a separate line of credit for each. Read our full comparison →

Yes. We have Smith Manoeuvre Certified Professionals on the team, and we design how the borrowing, the timing and the record keeping work. What you invest in is up to you and a licensed financial advisor of your choosing. The Smith Manoeuvre →

A debt swap is for people who already have money set aside, like non-registered investments, an inheritance or the proceeds from selling a property or business. You use that money to pay down the debt on your home first, then borrow again to invest. You may end up owing about the same amount, but the debt is now being used for something different. Selling investments can trigger tax, and investing always carries market risk, so we walk through both with you first. How debt swaps work →

It usually works best for Canadian landlords outside Quebec who own at least one long-term rental in their own name, still owe money on the home they live in with about 15 or more years left on it, and have, or can get, a readvanceable mortgage. A household income above about $75,000 tends to fit well, but that's a guide, not a hard rule. Cash damming eligibility →

Often, yes. The rental line of credit covers the expenses your rent doesn't, so you stop topping up the rental from your own pocket. The trade-off is that the rental borrowing grows faster than the debt on your home comes down, and if the shortfall is big enough, your total debt can rise. That's why we run it on your real numbers before you decide anything.

Yes. When a corporation owns the rental, the rent and the bills belong to the corporation, not to you, and moving money between you and the company raises different tax questions. So it doesn't fit the setup we build. If you also own a rental personally, that one can still work on its own.

No. We work only with long-term rentals. The strategy relies on steady monthly rent, and short-term rental income is seasonal and depends on licensing rules that can change.

Not rental cash damming, no. The whole idea is to put your rent toward the debt on your home, so if your home is paid off, or you rent the place you live in, there's nothing for the rent to go against. Depending on your situation, the Smith Manoeuvre or a debt swap might be worth a look.

There's no set minimum. Because the strategy works month by month, it tends to make the most sense when you have about 15 or more years left on your mortgage. If your balance is small or you're nearly paid off, the setup may not be worth it, and we'll tell you so.

We work everywhere in Canada except Quebec, which has its own tax legislation. We can introduce Quebec residents to partners who offer these strategies.

It can work well, but the order you do things in matters, because changing how a property is used changes how the borrowing is looked at for tax. Talk to us and your accountant before you move, so the steps are mapped out ahead of time.

It depends on which strategies fit your situation. Before we talk, you fill in a short form and we run your numbers. Then, on a 30-minute video call, we walk you through what we found and give you the full fee up front, before you commit to anything.

Yes. Your rental line of credit grows a little every month, so if its rate is higher than your mortgage rate, you're paying more interest on a growing balance. We use your actual rates when we model it, so you can see what that means for you before you start.

It works the same way, just with more rent going toward your home each month. Each rental gets its own expense account so every property has its own clean record, and one line of credit can fund all of them. There's a bit more record keeping with each property you add.

Not from your rental line of credit. If you borrow for a down payment, keep it on a separate line or sub-account. Mixing two different uses on one balance makes both harder to keep track of.

The steps themselves are everyday banking: drawing on a line of credit, paying real rental bills and paying down your own mortgage, all of it reported. The real question is a tax one: whether the interest on your rental line of credit is deductible in your situation, under section 20(1)(c) of the Income Tax Act. Is cash damming legal? →

The CRA doesn't approve or reject strategies like this. It publishes guidance, Income Tax Folio S3-F6-C1, that explains how it reads the rules on interest, including how borrowed money is traced to what it was used for. That guidance isn't an approval of anyone's plan, and how it applies to you depends on your situation.

It may be. Under section 20(1)(c) of the Income Tax Act, what matters is what the borrowed money was actually used for. If it paid your rental's expenses and the other requirements are met, the interest may be deductible. Clean records are a big part of showing that, but the outcome depends on your situation.

The CRA can ask you to show what your borrowed money was used for. The setup is designed so you can answer that easily: separate accounts, a written map of how the money moves, monthly statements and a receipt for every rental expense. Good records support your position, but they don't decide the outcome.

Most problems come from the day-to-day: a personal purchase on the rental line of credit, a rental bill paid straight from the line of credit instead of through your rental expense account, or missing receipts. There's also tax risk, because the CRA looks at your situation and can deny the interest. And if interest rates go up, the borrowing costs more.

We're a financial strategy and education company. We design the strategy together and help you set it up, implement it and track it. You run it. We don't arrange mortgages, prepare tax returns, give personalized tax advice or recommend investments. Rental cash damming, start to finish →

No. Freedom10 is not a mortgage brokerage and doesn't arrange mortgages. You choose who handles your mortgage: a licensed agent at Tango Financial Mortgage (ON) Corp. (Brokerage License #13691), or any other mortgage professional or lender you prefer.

Yes. They'll confirm whether your mortgage supports the strategy, and we'll coordinate with them. Freedom10 receives no mortgage referral fees. Agents at Tango do not charge clients a fee; any compensation is paid through Tango.

You need a readvanceable mortgage: one where the principal you pay down becomes available again on a line of credit linked to it, with a separate line you can use only for rental expenses. Whoever handles your mortgage can confirm whether yours works.

Yours. Your accountant prepares your return and advises you on what to claim. We give them your transaction map and records so they can see exactly how the money moved, and we'll spend up to an hour with them at tax time.

It shouldn't. Rental cash damming is about how your debt is used, and it doesn't involve any investing. If you add the Smith Manoeuvre or a debt swap, your investment decisions stay with you and your advisor.

It falls between two specialties. Your bank provides the mortgage and line of credit but doesn't set up how the money moves each month, and many accountants know the idea but haven't seen the account setup behind it. We help you build and run that side, and your accountant handles the tax side.

Yes. That's what our Strategy Risk Review is for. We look at an existing rental cash damming, Smith Manoeuvre or debt swap setup, including your accounts, how the money has been moving and your records, and show you what looks right and what needs attention. Questions about what to claim stay with your accountant. Strategy Risk Review →

Usually four to six weeks if your mortgage is already readvanceable. If it isn't, that needs to be sorted out with whoever handles your mortgage first, which can take longer. Once it's running, most of the monthly transfers can be automated. The setup, step by step →

That's fine. When you sell, the structure is wound down and the rental line of credit is usually paid off from the sale proceeds. Capital gains on the rental are a separate tax matter for your accountant. If you're planning to sell within a couple of years, though, the setup may not be worth it.

The strategy uses money you already have rather than adding a new payment, and the transfers can be paused if you need to. The interest on your rental line of credit still has to be paid, so we plan for that when we set things up.