A man buys a house in 2014 and finances it with a mortgage loan. This loan has a term until 2045 and qualifies as an ‘owner-occupied home debt’. In 2021, the man transfers this loan to another lender. However, the new loan is again given a term until 2051. When the man files his income tax return, he claims deduction of the interest and financing costs of this new loan. The inspector does not accept these deductions because the term of the overdrawn loan is too long.
Maturity adjusted
The man argues that the overdrawn mortgage should still be retrospectively treated as owner-occupied debt. He points out that the loan was adjusted in 2024, so that part of the loan does meet the original 2045 end date. This adjustment took place before the 2021 assessment was irrevocably fixed. In addition, the man argues for a proportional deduction of finance charges. According to him, the loan does qualify as owner-occupied housing debt for 26 out of 30 years, so part of the costs should be deductible.
Legal requirements
The court explained that a debt is an owner-occupied housing debt only if it is repaid during the term and the term does not exceed 360 months. When a loan is refinanced, the term of the new debt cannot exceed the remaining term of the original debt. The court found that the new loan was given another 360-month maturity in 2021, without taking into account the already expired maturity of the previous loan. The loan should have been allowed to run until 2045 at most to qualify as owner-occupied housing debt.
No retroactive or proportional deduction
The court did not follow the husband's contention that the subsequent loan adjustment in 2024 was retroactive to 2021. The repayment obligations must have been agreed in the loan agreement when the debt was incurred. Although the term was later adjusted, this change did not take effect until September 2024. For the year 2021, the loan did not meet the statutory conditions and this cannot be rectified retrospectively. The argument for proportional deduction of finance charges is also rejected. The law does not provide for such division of deductibility.