According to the Canada Revenue Agency (CRA), there are certain conditions required for the prepayment penalty to be tax deductible. For the deduction to be allowed, the prepayment penalty must be paid on money that you've borrowed in the course of earning income from property. In this case, you are repaying a debt obligation that is associated with your principal residence, and therefore is not tax deductible. You are not using that specific property for earning income.
For more information, check out: Tax Treatment of Prepayment Penalties
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