Canadian Personal Finance Blog

Well our amigo over at the Canadian Capitalist mentioned in his Friday update that the Star has an article about the “infamous” Smith Manoeuvre which talks about Frasier Smith’s method for getting the interest on your Mortgage tax deductible. If you remember I talked about this “risky” trick a while back here.

This is a risky game to play, since it assumes you can invest intelligently enough to not lose your stake, so be careful, and I am NOT recommending this strategy either.

A good quote from the Star Article articulates some valid concerns.

David Trahair, a Toronto chartered accountant, wrote a book urging Canadians not to invest in RRSPs before paying off mortgages and other non-deductible debt. He disapproves of swapping one loan for another.

“I recommend the total opposite, paying off your principal residence and not borrowing against it,” he says.

“It’s a high-risk strategy because you’re betting the farm that some investment adviser can do better than you can. You have a guaranteed return from getting rid of the mortgage.”

A while back I put up a post about the Smith Manoeuvre which seems to have caused a lot of hits for my site (I have figured out how to do that, so it is kind of cool to see what folks really think is interesting on my site). I do not condone this “tax twist” for Canada (those in the states I am sure are going, what do you mean you can’t write off your mortgage interest payments), but I was quite interested to see I get a lot of Google hits from this one little post. I have included the text for those who are too lazy to follow my link on top as well.

Folks,

Now here is a wild and scary way to try to hood-wink our tax collectors. Go to this site, but for the sake of everyone, don’t do this! Take the book out of your library and read what it entails, make your decision after consulting with folks who know what is going on (not just some nut bags BLOG!).

It sort of starts out oddly, assuming you have $20000 hanging around, but ok, I’ll bite, I have $20,000 hanging around (don’t tell my kids, please). Instead of taking that money and PLUNKING it down on my mortgage (or Line Of Credit in my case), BORROW $20,000 dollars to purchase some Equities (presumably stock), THIS you can write off the INTEREST on the loan, because you are INVESTING. Take the $20,000 you had and plunk it down on your mortgage, now suddenly $20,000 of your mortgage’s interest is now TAX DEDUCTIBLE! Wonderful eh? Well, what happens if you choose the wrong EQUITY (the way I am apt to do)? Evidently the government are looking into this as well, where if you take a loan out to buy EQUITIES they must make MONEY to be able to deduct the interest.

Anyhow, very scary stuff by me. Just plunk your money down, and save the $20000 up front! Just my opinion –C8j

Interesting, but again, please don’t run out and do this thinking I am saying it is a good idea, it is VERY risky!!!! –C8j