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The Smith Manoeuvre

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 spoke of this “risky” trick a while back here.

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

the Smith Manoeuvre

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.”

What Do I think?

I would never try this. It is far too risky, and with lower interest rates, is this even worthwhile?

Feel Free to Comment

  1. Cool that this has the same name as me, but has anyone really used this system? Seems kind of risky to me.

  2. Online Mortgage Broker

    Hi C8j,

    Just stumbled upon this post. I definitely agree that this strategy involves some degree of risk (in the short-to-medium term at least). We get a lot of inquiries about Smith Manoeuvre compatible mortgages and always suggest people first talk to a competent financial advisor about ALL their options.

    If you do plan to implement this strategy you better have a darn good investment approach (or an exceedingly good financial planner). Ask your planner to run some numbers though. Have him compare these three approaches:

    1. Implementing the Smith Manoeuvre
    2. Simply paying down your mortgage as fast as you can
    3. Investing your free cash in your RRSP (and using any tax refunds to pay down your mortgage)

    Make sure you understand your advisor’s assumptions and then pick the approach you feel has the best risk/reward for your circumstances.

    Have a wonderful day,
    Melanie 🙂

  3. I am not interested in this strategy, this amount of risk I think is fool hardy, and asking for trouble. I think a solid debt reduction plan works just as well, if not better than this and carries much less risk.


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