Interest Capitalization
Record this when your lender added interest to your credit balance and you pay that outstanding interest by borrowing more from the same credit line.
Use this event only for interest that already exists as outstanding interest on the credit account.
If your lender charged interest to an external account, do not create a separate Interest Capitalization event. Instead, record an Interest Charge in "Charged to external account" mode and add the credit-line transfer details there.
What you enter
| Field | Required | Description |
|---|---|---|
| Amount | Yes | Amount of outstanding interest to capitalize |
| Credit withdrawal date | Yes | When the new borrowing occurred |
| Credit deposit date | Yes | When the amount was applied to settle interest |
What happens
Outstanding interest decreases. Capitalized deductible interest and non-deductible principal increase by the eligible and non-eligible portions. Total debt is unchanged — interest becomes principal.
Tax effect: The eligible portion counts as deductible interest paid for the year, even though no personal cash left your pocket.
Common questions
Can I capitalize only the deductible portion? No. Like payments, capitalization is applied proportionally to eligible and non-eligible outstanding interest.
What if I capitalize more than my outstanding interest? Any excess above outstanding interest is ignored.
Is this the same as not paying interest? No. From the CRA's perspective, you've paid the interest and taken a new loan.
What if interest was charged to an external account? Handle it inside the Interest Charge event. External-account capitalization is no longer a separate Interest Capitalization event.
Learn more
- Interest capitalization — how character is inherited and the Smith Manoeuvre connection
- Interest Charge — recording the charge
- CRA rules applied — interest on interest deductibility