The Smith Manoeuvre: How to Make your Mortgage Tax Deductible

The Smith Manoeuvre: How to Make your Mortgage Tax Deductible

by James E. Sellars

About 20 years ago in British Columbia a financial planner by the name of Smith decided he could help Canadians acquire real wealth if he could show them how to write off their home mortgages on their tax returns.

He was a professional in the investment industry and knew how to exercise some options in personal finance that would allow the average Canadian to profit by claiming their mortgage expenses to reduce the tax they would otherwise have to pay.

He knew that the biggest financial problem average Canadians face is paying down their mortgage, and he wanted to help.

Fraser Smith, has been described as a cross between a big burly biker and Santa Claus.  Following 20 years of helping his clients in BC to acquire real wealth through crafty tax planning and debt reduction, he decided to retire from the business and write the book.  Now, the secrets of the Smith Manoeuvre are available to all Canadians in a compact and very readable manual for wealth creation, simply titled, “The Smith Manoeuvre.”

The process involves using the equity you have in your home to purchase investments.  The Income Tax Act is very clear, if the loan is for consumption the related interest expense is not deductible, if the loan is for investment or for business purposes then the interest is deductible against other sources of income and can reduce the tax you would otherwise have to pay the government. The homeowner simply arranges a line of credit which is used to purchase investments, and the interest is tax deductible.

With the help of a professional financial planner it is possible to buy investments that will pay the monthly interest costs for the investment loan, from its’ earnings, making this Smith Manoeuvre a transaction that doesn’t cost you any “out of pocket” new money. At the end of the year when you file your tax return you will have an interest expense information slip from the bank, that you never paid for, which you can claim on your return. The effect of this is that you will get a refund cheque from the government, for the interest expense on the investment loan, a loan you didn’t pay yourself. We like to think of it as “free money” you can apply to the outstanding mortgage on your home taking years off the eventual retirement of the debt.

The homeowner enjoys another real savings when they notice that the mortgage is retired years before it was scheduled to be. There are examples of people retiring their mortgages in as little as 26 months down from 11 and a half years, saving tens of thousands of dollars in payments, that have been made by the investments they bought.

So let’s recap; the homeowner saves on their tax return, gets a refund cheque in April, reduces the mortgage they own and saves because the house is paid for earlier than scheduled.  Did I mention that of course the home is free and clear and they have an investment account of thousands of dollars they otherwise wouldn’t have, all without taking a dollar out of their pockets?

For more information on this very important financial planning visit our website for more articles and details on seminars in your area.

James E Sellars, B.A. (econ), CFP, is a Tax Accountant and Certified Financial Planner for Keybase Financial Group in Moncton, NB. Telephone (506) 856-7977, fax: (506) 859-8504 email: