Interest Capitalization
Record this when you pay interest by borrowing more from your credit line, rather than using personal funds.
There are two modes, depending on how your lender charges interest:
Added to credit balance
Your lender added interest to your HELOC balance. You capitalize by borrowing from the same account to settle the outstanding interest.
What you enter
| Field | Required | Description |
|---|---|---|
| Amount | Yes | Amount to capitalize (typically your total outstanding interest) |
| 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.
Charged to linked account
Your lender charged interest to a linked account (e.g. chequing). You funded that payment by transferring from your HELOC.
| Field | Required | Description |
|---|---|---|
| Linked account | Yes | Which account's interest to capitalize |
| Interest charge | Yes | Which charge to capitalize (select from unlinked charges) |
| Transfer date | Yes | When the HELOC withdrawal occurred |
| Transfer amount | Yes | Amount withdrawn from HELOC |
| Return date | Optional | When excess was returned to HELOC |
| Return amount | Optional | Amount returned (≤ transfer amount) |
What happens: The net transfer amount (transfer minus return) increases credit principal. The portion up to the interest charge amount is split between capitalized deductible interest and non-deductible principal using the charge's billing period ratio. Any excess beyond the interest charge amount becomes non-deductible principal.
This event is linked 1:1 to a specific Interest Charge. The balance effect is applied at the linked charge's date. The transfer and return dates are used for statement generation.
Tax effect (both modes): 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 deductible and non-deductible interest.
What if I capitalize more than my outstanding interest? For "Added to credit balance": any excess above outstanding interest is ignored. For "Charged to linked account": the excess becomes non-deductible principal.
Is this the same as not paying interest? No. From the CRA's perspective, you've paid the interest (making it deductible) and taken a new loan.
Can I partially capitalize? Yes. If your HELOC transfer is less than the interest charge amount, only the transferred portion is capitalized. The remainder of the interest is treated as paid from personal funds (already counted by the interest charge 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