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I was very much interested in starting the Smith Manoeuvre so that my mortgage interest could be tax deductible and I can make my mortgage work for me.

In the past, I was very much interested in starting the Smith Manoeuvre so that my mortgage interest could be tax deductible and I can make my mortgage work for me.  I was intent on using this strategy because it seemed so attractive, so brilliant, and so… well.. scheme-y!  And my name isn’t Young Scheme-y Thrifty for nothing.

However, it is 100% legal and there isn’t anything scheme-y about the Smith Manoeuvre.

There are many posts about the Smith Manoeuvre available written by all the fantastic Canadian PF blogger big wigs (most notably, Million Dollar Journey who is a big fan of the strategy).

If you’re interested in reading what the Canadian PF crew’s thoughts are on the Smith Manoeuvre, you can check it out here:

What Is The Smith Manoeuvre, You Ask?

Well, it is a strategy developed by Fraser Smith back in 2002.  He wrote a book about it (and named it after himself) and answered the question “Is your mortgage tax deductible?”

Essentially, the Smith Manoeuvre makes your mortgage tax deductible because you can re-invest your mortgage payments because you can earn income on it.  The caveat (though this is easy to acquire) is to get a re-advanceable mortgage.  Your Home Equity Line of Credit increases (allowing you to invest more) with every dollar you pay down on your mortgage.

Every time you make a payment to your mortgage, your Home Equity Line of Credit grows and you will be able to increase the amount you borrow on your home towards your investments, with the preference for dividend paying equities in a non-registered account (that means no TFSA, RRSP or the sort).

Related: RRSP vs TFSA

Basically, the goal is that you will be able to reduce your mortgage payments faster because the payments are tax deductible.  So it is considered a win-win situation (minus the risk of leveraging on your home).

The main thing is that when you receive your tax refund you take that and use it towards paying down your mortgage.

If you are interested in Fraser Smith’s book, you can check out and buy his book here from his website.

So is the Smith Manoeuvre Risky?

Well, Ellen Roseman seems to think so.  She’s a writer for the Toronto Star and disagrees with Fraser Smith’s opinion that Smith Manoeuvre debt is “good debt”.

I think that some people consider the Smith Manoeuvre to be the best thing since sliced bread, while others take a more cautious approach and think that it’s risky business to be leveraging your home (when essentially its already being leveraged with a large mortgage in a real estate market that is kind of shaky).

However, I haven’t embarked on this venture and after much deliberation, I don’t think I will embark on it.  With interest rates rising I don’t see myself being successful with creating the income needed to offset the interest costs.  However, it does seem like an attractive idea and if I had more of a backbone or a thirst for adventure, I would go for the gusto and go for the Smith Manoeuvre.  I’m more of a Keep it Simple, Stupid type of girl, so likely the Smith Manoeuvre is not for me.  I’ll stick to my basic strategy of aggressively paying off my mortgage loan and sticking to vanilla index ETFs that I purchase through Questrade, or with monthly pre-authorized contributions to Wealthsimple (my choice out of Canada’s top robo advisors).

Therefore Keep it Simple to most means paying off your principle mortgage.  No re-advanceable fancy mortgage where you deduct taxes from it to get a big tax deduction (however sexy that sounds).

Readers, do you use the Smith Manoeuvre?  What are your thoughts? Yay or Nay?

Article comments

Keith Uthe says:

The writer of the article is incorrect on when the Smith Manoeuvre was created by Fraser Smith. It started back in 1987 when he worked with a CU branch manger is Vancouver to create a readvancable mortgage product. The original book was published in 2002. Fraser passed away in 2011 and his son Robinson has since taken on the Smith Manoeuvre legacy and created Smith Manoeuvre Certified professionals to ensure people can get proper guidance for success. While implementing the Smith Manoeuvre properly you will begin to see the tax advantages each year and when 100% converted you will save thousands in tax each year that can be used to paydown your mortgage or invest. For those that say it did nto work for them likely there was important guidance missing to make sure you stayed on track. We have used the process for 15 years and it has saved us $1000’s each year in income tax. I am a Smith Manoeuvre Certified Mortgage Professional

cdnlady says:

I went to Rob Smith son of Author of the Smith Maneuver 10 years ago. I collapsed the Maneuver after 10 years. The result is a mortgage much larger than what I started with and no investments towards my retirement. Had I not gone to him my mortgage would be 50% paid off by now. Instead I’m in worse shape then when I started. Stay away from Rob Smith.

Ray Nelson says:

Hi , Have been using this since 2009 and most impressed !!!! Retired in 2009 , with no mortgage and reinvested with new mortgage and receive +/- $3400.00/month on the surplus of the investment.The market has gone down and up , but we are still receiving great returns AND pay no taxes . Enjoy !!

Ed Rempel says:

Hi Tim,

Which Smith Manoeuvre strategy are you doing? The SM normally takes about 3 years off your mortgage, and possibly more depending on many possible variations, but it does not reduce your mortgage from 21 years to 5.


Peter says:

Are there other risk factors besides interest rates with the SM?

Kyle says:

Perhaps the biggest risk factor is that of simply being human Peter. Playing with your investments too much can result in negative results. For some reason many of us are prone to doing this.

BeachBoy says:

I think the rising interest rates argument is not valid.
if interest rates rise, then returns on investment swill rise also (interest rises when the economy goes well). Of course, nothing is perfectly 1:1 correlated, but IMO low or high interest rates the manoeuvre is exactly the same, where what’s important is to have more returns than the borrowing costs.
And to make sure the returns are not fully taxes by using canadian dividends or similar.

Kyle says:

Nothing is perfectly correlated BB, and there have certainly been periods when higher interest rates have NOT meant better equity returns. That beings said, if we use past returns (*natural disclaimer here about past returns blah blah future performance blah blah*) the numbers bear out that the SM does well in those high interest rate environments. Put it this way. Say your marginal tax rate is 40%, 40% of at a 10% HELOC rate is going to be more than than 40% at a 3% rate right? Now obviously in real terms you’re still paying more money for your loan, but the point of the argument is that you are getting a bigger break relative to what is going on in the rest of the economy. If the value of equities is being pushed way higher by rising interest rates, you’re should be better off in the long run.

You are correct about using tax-efficient investments. The two prominent online case studies I would point to are the one on MDJ and the one that The Financial Blogger started (before putting on hold briefly because he thought he was becoming over-leveraged). Both are great example of what I intend to do when I build a little more equity in my house and have a little more of a cushion where I can begin the process and not feel too threatened by inevitable negative circumstances at some point.

BeachBoy says:

Very interesting, thanks for sharing (and your guest post)

Ray Clarke says:

In Australia for many years predating Fraser Smith many Investors have used methods which have given the same result. Our taxation authority looks at form not substance so the way it is set up will have a great deal with whether the full tax benefit is received. The common thing in Australia is as your equity increases ie as you pay off the home mortgage you reborrow with a separate loan using the separate loan for investing and paying off your original home mortgage with the income from the investments. Taking care all the time not to mingle the separate loan proceeds with existing savings accounts as then the taxation say the investments were purchased from savings and not with the second loan.
Of course just as in the game of Monopoly, our taxation office has a wild card if they believe you only structured the way you did in order to get a tax advantage they can disregard your structure. Still there are enough acceptable ways of setting up your structure in Australia to get the result you want.

Koala says:

I like the idea, but at this point in my life it’s not for me. I’m more of a play it safe type of person.

When we have more disposable income, and more equity in the house I might reconsider.

tim says:

I do the SM and it has done nothing but benifit me i have 1.5 years left on my mortgage (before its fully converted into a tax write off) when we started this 3.5 years ago we had 21 years left on our mortgage, 3.5 years later doing the SM and we have 6 years left or in SM years 1.5. We get a nice return every year (nothing fancy) but we never owe and usually get several thousand back wich we just throw back on the mortgage..It works in good times and in bad. I recommend it especially to the youngsters who have just bought their first 100-250k starter condo/apartment great way to learn about money , investing, reinvesting, ROI , all of it , also it helps you keep an eye on your investments and lots of other things.

Kyle says:

Awesome Tim! Glad to hear the SM has been so successful for you. Have you checked out our other SM articles on the site?