Deductible Interest Tracker

Interest Charge

Use this event when your lender charges interest on your credit account balance.

When to Use

Record this event when your monthly statement shows an interest charge, or whenever your lender adds interest to your balance. This is typically monthly for HELOCs and lines of credit.

Recording interest charges is essential—this is how the app calculates your deductible interest.

What You Enter

Date — The date the interest was charged. This is usually the statement date or the date the charge appears on your account.

Amount — The total interest amount charged, from your statement.

What Happens

When you record an interest charge, the app calculates how much is deductible based on your balance composition during the billing period, then adds the interest to your outstanding balance.

The Calculation

The app splits the interest charge between eligible (deductible) and non-eligible (non-deductible) portions based on the time-weighted composition of your debt during the period. See "How Interest Is Split" below for the full methodology.

Credit Account

Outstanding Interest increases:

  • Outstanding Eligible Interest increases by the deductible portion
  • Outstanding Non-Eligible Interest increases by the non-deductible portion

The interest is "outstanding" because you haven't paid it yet. It will become "paid" when you record a Credit Payment or Interest Capitalization event.

Other Accounts

No changes to brokerage cash or holdings. Interest charges add to what you owe but don't move any money.

How Interest Is Split

The app uses time-weighted average balances to split interest between deductible and non-deductible portions. Here's how it works:

Step 1: Identify the Period

The billing period runs from the day after your previous interest charge through the date of this charge. If this is your first interest charge, the period starts from your first tracked event.

Step 2: Divide into Intervals

Within the billing period, the app identifies intervals where your balance composition was constant. Every time you borrow, invest, sell, receive distributions, or make payments, a new interval begins.

For example, if your January billing period had borrowing on January 10 and a purchase on January 20:

  • Interval 1: January 1-9 (original composition)
  • Interval 2: January 10-19 (after borrowing, before purchase)
  • Interval 3: January 20-31 (after purchase)

Step 3: Calculate Weighted Balances

For each interval, the app calculates:

  • Days in interval × Deductible balance = Deductible weight
  • Days in interval × Non-deductible balance = Non-deductible weight

Step 4: Allocate the Interest

The total interest is split according to the total weights across all intervals.

If deductible debt made up 75% of the dollar-days during the period, 75% of the interest is deductible.

Example: Simple Case

Your debt was constant all month: $15,000 total, with $12,000 deductible and $3,000 non-deductible. Your statement shows $150 in interest.

Event: Interest Charge

  • Amount: $150
  • Date: January 31

Calculation:

  • Deductible portion: 80% × $150 = $120
  • Non-deductible portion: 20% × $150 = $30

After:

  • Outstanding Eligible Interest increases by $120
  • Outstanding Non-Eligible Interest increases by $30

Example: Changing Balances

You started January with $10,000 deductible debt and zero non-deductible. On January 15, you borrowed $5,000 for personal use. Your statement shows $100 in interest.

Calculation:

  • Days 1-14 (14 days): $10,000 deductible, $0 non-deductible
  • Days 15-31 (17 days): $10,000 deductible, $5,000 non-deductible

Weighted calculation:

  • Deductible: (14 × $10,000) + (17 × $10,000) = $310,000 dollar-days
  • Non-deductible: (14 × $0) + (17 × $5,000) = $85,000 dollar-days
  • Total: $395,000 dollar-days
  • Deductible share: $310,000 / $395,000 = 78.5%

Result:

  • Eligible interest: $78.50
  • Non-eligible interest: $21.50

The personal borrowing on the 15th reduced your deductible percentage for the second half of the month.

Viewing the Calculation Details

Click any interest charge in your ledger to see the full breakdown. The detail drawer shows:

  • The billing period dates
  • Each interval with its dates and days
  • The deductible and non-deductible balances for each interval
  • The interest calculated for each interval
  • The totals

This transparency lets you verify the calculation and understand exactly how your deductible interest was determined.

When Interest Becomes Deductible

Recording an interest charge creates "outstanding" interest. This interest is not yet deductible for tax purposes—interest is deductible when paid, not when charged.

The outstanding interest becomes paid (and thus deductible) when you:

  • Record a Credit Payment that covers the interest, or
  • Record Interest Capitalization that settles the interest with new borrowing

For tax purposes, what matters is the interest paid during the tax year. If December's interest is charged on December 31 but you don't pay until January 5, that interest counts toward next year's deduction.

Common Questions

What date should I use? Use the date the interest charge appears on your statement or the statement closing date. Consistency matters more than precision—just use the same approach each month.

What if I don't know the exact breakdown of my debt? The app calculates it based on all your recorded events. If you're missing some historical events, the calculation may be off. Go back and record any missing borrows, purchases, or payments.

Should I record interest even if I'm capitalizing it? Yes. Record the interest charge first, then record the capitalization. The interest charge establishes the amounts; the capitalization pays them with new borrowing.

What if interest is charged daily but I only see it monthly? Just record the monthly total. The app's interval-based calculation effectively handles daily accrual by weighting each day's balance.

What if I missed recording some interest charges? Go back and add them. The app will recalculate your deductible interest totals. For old periods, you can estimate based on statement records.

CRA Basis

Interest deductibility follows a cash-basis timing rule for most individual investors. Per Income Tax Folio S3-F6-C1, paragraph 1.13, interest is deductible when paid. Recording interest charges tracks when interest accrues; recording payments tracks when it becomes deductible.

The proportional allocation of interest between deductible and non-deductible is based on the tracing principles throughout S3-F6-C1—interest follows the purpose of the underlying debt.

Related Events

Credit Payment — Pays outstanding interest, making it deductible.

Interest Capitalization — Pays interest by borrowing more from the same account.