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The SMITH Manoeuvre

I wrote this one early on in the game. The message is simple, if not over the top, but I stand by it.

Here is a wild and scary way to make your mortgage interest tax-deductible. You could 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. After consulting with folks who know what is happening (not just some nut bags BLOG!), decide.

It starts oddly, assuming you have $20,000 hanging around. If I have $20,000 hanging around (don’t tell my kids, please), and instead of taking that money and plunking it down on my mortgage (or Line Of Credit in my case), I borrow 20,000 dollars to buy some Equities (presumably stock). This loan allows you to write off the interest  on the equities 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 tax-deductible! Wonderful eh? What happens if you choose the wrong equity (the way I am apt to do)? The government is also looking into this, where if you take a loan out to buy EQUITIES, they must make MONEY to deduct the interest.

Should You Do This?

My opinion is this is a risky way to do things. Just plunk your money down, and save the $20,000 upfront! I know folks who have succeeded with this method, but I do not recommend anyone do it.

Feel Free to Comment

  1. “where if you take a loan out to buy EQUITIES they must make MONEY to be able to deduct the interest. Anyhow, very scarey stuff by me.”

    You are mistaken here.
    The rule is that you must have a “reasonable expectation of earning an income” from the investment. (CRA IT533 bulletin)
    So when you buy the investment your expectation should be reasonably making an income. This is why a GIC wouldn’t qualify.

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