Pay off the Line of Credit or the Mortgage in Canada

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My question is: Canadian-specific
QUESTION: Hi David
I have just started the REAG program and would appreciate knowing more before I take any action step on purchasing another property.
We own a home with a basement suite which rents for $550.00 per month. We also owe 30,000.00 on a Line of Credit for a business that did not work.
Do I pay off the LOC asap or refinance the 30k under my existing mortgage so I can keep my cashflow for another property purchase? 
I am wondering if I should keep my cashflow and use it to purchase another property in a few months time? I would then rent out our existing home for about the same amount of a refinanced mortgage.
Any thoughts and direction would be greatly appreciated.
Sincerely,
Dawn King
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david ingram replies:
The REAG Program refers to Ozzie Jurock's Real Estate Action Groups where members are encouraged and shown how to buy real estate profitably.  Correspondence members live as far away as Japan and can participate through web cameras and the internet.  Check it out at www.jurock.com/
the answer follows:
Your line of credit interest is deductible.  Theoretically, it would be the last thing you paid off.  You should pay off any non-deductible loans first.
I cannot tell  if there is an existing mortgage on the property with the rental suite.  If there is, you would pay this off first to get rid of the non-deductible interest.
Any refinancing of your existing house to buy another house to live in does not create a deductible interest even if the house is rented in Canada - (it is deductible in the US for money borrowed up to the original purchase price of the house). On the other hand, if you borrow money on the house you live in to buy an investment property, the interest is deductible even though you are living in it.
For more information about deductions for interest and hints on how to make any mortgage deductible in Canada, goto www.centa.com and read the November 2001 newsletter.  
If you are really going to do this, you should come in for a personal consultation.  If you do one little thing out of order, it will not be deductible if audited.
David Ingram's US/Canada Services
US / Canada / Mexico tax and working Visa Specialists
US / Canada Real Estate Specialists
4466 Prospect Road
North Vancouver,  BC, CANADA, V7N 3L7
Res (604) 980-3578 Cell (604) 657-8451
(604) 980-0321 
New email to [email protected]
www.centa.com www.david-ingram.com
Disclaimer:  This question has been answered without detailed information or consultation and is to be regarded only as general comment.   Nothing in this message is or should be construed as advice in any particular circumstances. No contract exists between the reader & the author and any and all non-contractual duties are expressly denied. All readers should obtain formal advice from a competent financial, or real estate planner or advisor & appropriately qualified legal practitioner, tax or immigration specialist in connection with personal or business affairs such as at www.centa.com. If you forward this message, this disclaimer must be included."
Be ALERT,  the world needs more "lerts"
This from "ask an income tax and immigration expert" from www.centa.com or www.jurock.com or www.featureweb.com. Canadian David Ingram deals daily with tax returns dealing with expatriate:
multi jurisdictional cross and trans border expatriate problems  for the United States, Canada, Mexico, Great Britain, the United Kingdom, Kuwait, Dubai, Saudi Arabia, South Africa,  Thailand, Indonesia, Egypt, Antartica,  Japan, China, New Zealand, France, Germany, Spain, Italy, Russia, Georgia, Brazil, Peru, Ecuador, Bolivia, Scotland, Ireland, Hawaii, Florida, Montana, Morocco, Israel, Iraq, Iran, India, Pakistan, Afghanistan, Mali, Bangkok, Greenland, Iceland, Cuba, Bahamas, Bermuda, Barbados, St Vincent, Grenada,, Virgin Islands, US, UK, GB, American and Canadian and Mexican and any of the 43 states with state tax returns, etc.
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another similar question will be as we lump them.
You may find more answers at www.centa.com
David Ingram of the CEN-TA REALTY  Group
US / Canada / Mexico tax and working Visa Specialists
US / Canada Real Estate Specialists
(604) 980-0321 - Fax 913-9123 [email protected]
www.centa.com www.david-ingram.com
  
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