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Unlocking the Benefits of Cash Damming: What You Need to Know
By Team Breaking Bank profile image Team Breaking Bank
2 min read

Unlocking the Benefits of Cash Damming: What You Need to Know

In the world of real estate investment and tax strategies, cash damming stands out as a method for converting non-deductible personal debt into tax-deductible business or investment debt. This article explores what cash damming is, its history and background, suitability, financial benefits, legality, common pitfalls, and the importance of proper guidance.

What is Cash Damming?

Cash damming is a financial strategy that allows homeowners and real estate investors to convert their non-deductible mortgage debt into tax-deductible business or investment debt. By using rental income or business revenue to pay down the mortgage on their principal residence and then borrowing to cover rental or business expenses, individuals can achieve significant tax savings and accelerate their mortgage repayment.

For a detailed step-by-step implementation guide, download the comprehensive "how-to" guide.

History and Background

Cash damming has been a popular strategy among affluent Canadians for managing debt more efficiently. It has its roots in broader debt conversion techniques like the Smith Manoeuvre, which aims to transform non-deductible mortgage interest into deductible interest. The concept leverages Canada’s tax laws that allow interest on money borrowed for investment purposes to be deductible.

Who is it Suitable For?

Cash damming is ideal for:

  • Homeowners with a Mortgage: Those with significant non-deductible mortgage debt on their primary residence.
  • Real Estate Investors: Investors with rental properties can maximize their tax efficiency by using rental income to pay down personal mortgages.
  • Self-Employed Individuals: Business owners can convert personal debt into tax-deductible business expenses.

Financial Benefits

Tax Efficiency: The primary benefit is converting non-deductible debt into deductible debt, which can lead to substantial tax savings. These savings accumulate over time, potentially amounting to tens of thousands of dollars.

Accelerated Mortgage Repayment: By applying rental or business income to pay down the mortgage on the primary residence, and using tax-deductible loans for expenses, the strategy allows for faster mortgage repayment.

Wealth Building: The tax refunds and interest savings can be reinvested into other income-generating assets, creating a compounding effect that enhances wealth-building efforts.

Cash damming is legal because it adheres to Canadian tax laws that allow for the deduction of interest on money borrowed for investment purposes. The strategy involves clear, compliant financial practices, such as maintaining separate accounts for deductible and non-deductible cash flows and ensuring proper documentation of transactions.

Common Pitfalls

While cash damming offers significant advantages, it is not without risks:

  • Complexity: The strategy requires meticulous planning and execution. Missteps can lead to financial complications.
  • Record-Keeping: Accurate documentation of all transactions is essential to substantiate tax deductions.
  • Patience: The benefits of cash damming accrue over several years, requiring discipline and consistent implementation.

Seeking Proper Guidance

Implementing cash damming effectively requires professional advice. Consulting with a mortgage broker, tax professional, and financial advisor ensures that the strategy is tailored to your specific financial situation and goals. These professionals can help navigate the complexities, optimize the benefits, and ensure compliance with tax laws.

For those interested in a detailed step-by-step guide on implementing cash damming, a comprehensive "how-to" guide is available for download. This guide provides in-depth instructions to help you leverage this powerful financial strategy effectively.


By understanding the intricacies of cash damming, you can unlock its full potential to optimize your financial situation. Whether you’re a homeowner, real estate investor, or business owner, this strategy can be a game-changer in your financial toolkit. Always seek professional guidance to maximize the benefits and ensure proper implementation.

By Team Breaking Bank profile image Team Breaking Bank
Updated on
Cash Damming Mortgage