My feeling is that it would be deductible in proportion to the proportion of interest paid on the HELOC. But that is the issue under question from the CRA.

Whatever is done should be well documented to show your intentions and have a contingency plan in place should anything get denied by the CRA.

Since the house, mortgage and HELOC are in both of our names, I’m assuming I should (or need to?) have the investments in both our names as well.

The interest will be tracable, the HELOC is only for investing. So it would be allowable, though they could possibly alter my split in an audit.

There is no simple answer. Each person in a marriage is responsible for accounting for every dollar brought and earned in a marriage. This seems to indicate that there may not be a 50/50 “beneficial” ownership of a home for tax purposes and subsequently the underlying investments.

In addition, for interest to be deductible it must be traceable to investment income.

There is an issue of the attribution rules and interest deductibility rules applying.

I wrote a letter to the CRA some time ago asking this very question and they are researching this issue. Once I receive the letter, I will post it verbatim!