In a nutshell, The Smith Manoeuvre employs refined and proven debt conversion techniques to transform mortgage interest into tax deductions. The method has a remarkable snowball effect that generates large and growing annual tax refunds, and enables Edmonton homeowners to knock years off the life of a non-deductible mortgage and build an impressive financial portfolio at the same time. It is the most efficient way for families to raise the resources they need to secure both their house and income in retirement. The Smith Manoeuvre uses the legal tools of the CRA and Canadian Financial institutions. It has been reviewed by Revenue Canada staff, and endorsed by respected financial experts and economists, investment planners, and lenders.
Let's take a deeper dive.
Is your mortgage killing you softly? A $500,000 mortgage at 4.0% over 25 years will set you back about $789,000 in interest costs. And that’s after-tax income, which means you’ll have to earn about $1,127,000 to pay off your home if you’re at the 30% tax bracket. No wonder it’s difficult to save for the future. But if you make it tax-deductible using The Smith Manoeuvre, you will recover a good chunk of that interest in the form of yearly tax refunds. Use the tax department’s money to pay down your expensive, non-deductible mortgage faster, and you’ll see it melt away many years sooner than you imagined possible. It stands to reason: if you are going to have mortgage debt, why not make it tax deductible? The Smith Manoeuvre shows you how.
Are you investing enough, soon enough? Most Canadians and Edmonton homeowners aren’t. After ever-rising taxes and the cost of making ends meet, most of us don’t have the resources to put away 10% of our income and max out our RRSPs or TFSAs every year. The benefits of compound interest, which are essential to our long-term financial well-being, remain elusive. But there is a way to change that. It’s done by transforming mortgage interest into tax refunds. Next to winning the lottery, nothing improves your cash flow more efficiently than the act of reducing your income tax – and doing it by making your mortgage tax-deductible. The Smith Manoeuvre is a remarkably efficient way for you and your family to raise large amounts of new money, through free tax refunds, so that you can start building a larger nest egg, sooner. You may or may not have a monthly savings program already (congratulations if you do!) but how would you like to have an additional $750 per month to invest for your future? Maybe $1,000 per month? More?
Whether you are ready to implement the Smith Manoeuvre strategy or just want to have a conversation - let's chat.
As an Smith Manoeuvre Mortgage Broker here in Edmonton, I help folks strategize, plan and implement the Smith Manoeuvre on the mortgage side. Working alongside the other professionals in your life, like your accountant and financial advisor, together we strategize, plan, and get you into the right mortgage.
Borrow back and invest the monthly principal reduction that occurs as you make your monthly mortgage payments over the months remaining on your mortgage. Borrowing the money back to invest creates an investment loan and the interest on this investment loan is tax-deductible.
Each year, when your tax refund arrives, use this money to make an extra payment against your mortgage, then immediately reborrow and invest the same amount.
Reduce your non-deductible mortgage balance using cash obtained by liquidating any... non-registered paid up assets you own, and then borrow back the same amount to invest in replacement assets. The Debt Swap is the act of swapping non-deductible debt for deductible debt using money regardless of the money's source.
Divert current monthly savings and investment plan amounts against the mortgage loan, and then borrow back the same amount to invest.
Use proprietorship revenues to prepay the mortgage loan, then reborrow to service the proprietorship expenses. If the revenues are greater than the expenses, invest the difference.
Request dividends to be sent to you in cash rather than reinvested automatically. Use these dividends to prepay the mortgage loan, then reborrow to purchase the same stock or investment that issued the dividends or invest elsewhere.
If you have available funds that can be accessed immediately upon refinance into a readvanceable mortgage (or after restructuring your existing readvanceable mortgage), after a thorough discussion with your accredited Smith Manoeuvre Certified Professional advisor, you can directly invest some or all of the available funds. As this is discretionary borrowing, homeowners are advised to cover the incremental interest from personal cash flow and prepay the mortgage, then reborrow to service the related incremental deductible interest.
The Smith Manoeuvre makes no recommendation on debt levels for the citizen. The strategy begins with the assumption that you and the bank are satisfied that you can handle the amount of leverage you have assumed in the mortgage loan you have already agreed to service before you read this book. You have already taken on the debt in the form of a mortgage which means you have already leveraged your borrowing power. Whether you have too much or too little debt is between you and your Smith Manoeuvre Certified financial professionals. I know with certainty that because it’s your house mortgage, the interest expense is not tax-deductible. The Smith Manoeuvre will fix that problem. Without increasing your debt you have learned how to convert your bad loan to a good loan. Simultaneously you will start building a free-and-clear investment portfolio for your retirement – your Personal Pension Plan. And to make it completely worthwhile, the tax department will begin sending your tax refund cheques that are also tax-free with which you are able to eliminate that bad debt faster than otherwise possible. All of this, using no new money from your bank account.
To see success in the strategy, it requires long-term commitment to your financial plan. Align yourself with professionals who have a fiduciary to you, strategize with them, make the plan and STICK to it. This is a form of leverage, and losses as well as gains can be magnified. If you are the type of person in which debt keeps you up at night, are quick to take action based on emotion, or do not have a clear understanding on your own financial situation this strategy may not be a good fit for you (for now). That being said... taking the time to understand the difference between good debt vs bad debt is a good place to start.
Thank you for asking dear homeowner. What you can expect is:
1. Discovery Call: this preliminary conversations purpose is simply to get to know each other. It is an opportunity for you to ask questions as well for me to learn more about your goals and specific situation.
2. The Deep Dive: review accuracy of information, overview of strategy and how it relates to you, and demonstration of The Smithman Calculator.
3. Implementation: you like what you see - time for mortgage financing!
Wherever you are at with your finances and mortgage, happy to have a conversation.