A three-unit rental property, whose purchase was financed with a mortgage loan (Loan #1), was used 46% (one of the three units) as the individual’s principal residence – but then on January 1, 2007, the individual purchased a new immovable that became his principal residence (the "residence" with the triplex then being used 100% for rentals. Also on that date, the individual borrowed additional amounts as an addition to Loan #1, with that borrowing used partly for personal use and partly to finance the purchase of the residence. In order to complete the financing of his residence, the taxpayer obtained an additional loan (Loan # 2) secured by a mortgage on his residence.
CRA indicated that the deductible interest on the original loan amount increased to 100% with the change in use. However, the additional borrowing was not used for an eligible use.