The Smith Maneuver

The Smith Maneuver — Explained in Plain English

The Smith Maneuver is a legal tax strategy in Canada that helps homeowners turn their non-deductible mortgage debt into tax-deductible investment debt — while building wealth over time.

Why do people use it?

In Canada, you can’t deduct mortgage interest on your home — unlike in the U.S.

But if you borrow money to invest in income-generating assets (like stocks, ETFs, or rental properties), the interest becomes tax-deductible. The Smith Maneuver uses this rule to your advantage.

How it works — Step by Step

1. You get a re-advanceable mortgage.

   • This is a mortgage + a HELOC (home equity line of credit).

   • As you pay down the mortgage, the HELOC limit automatically increases.

2. You make your regular mortgage payments.

   • Each payment reduces your mortgage principal.

   • The same amount is made available in your HELOC.

3. You borrow that amount from your HELOC.

   • You immediately re-borrow the paid-down amount from the HELOC.

   • You then invest that borrowed money in something that generates income (like dividend-paying stocks).

4. You deduct the HELOC interest on your taxes.

   • Because the borrowed money is used for investment, the interest is now tax-deductible.

5. Repeat this process monthly.

   • Over time, your entire mortgage balance is paid off…

   • And replaced by an investment loan with tax-deductible interest.

An Example:

Let’s say:

• You owe $400,000 on your mortgage.

• You pay $1,500/month toward principal.

• Your re-advanceable mortgage increases your HELOC limit by $1,500 every month.

Here’s what you do:

• Each month, borrow that $1,500 from your HELOC.

• Invest it (e.g., into ETFs or dividend stocks).

• Now you owe $1,500 on the HELOC, but the interest is tax-deductible.

• Repeat every month.

After a few years:

• Your mortgage balance shrinks.

• Your investment portfolio grows.

• Your tax deductions increase (from HELOC interest).

• Eventually, your full $400,000 becomes investment debt, with all interest tax-deductible.

Pros vs Cons

✅ Pros	❌ Cons
Interest becomes tax-deductible	Investments may lose value
Build wealth while paying your mortgage	Requires discipline
Potentially pay off debt faster	Tax strategy must be followed carefully
Reduces your taxes over time	You need a re-advanceable mortgage (not all banks offer)

Important Rules:

• You must invest in income-generating assets (not your car, cottage, or crypto).

• You must not co-mingle personal and investment funds (keep records clean).

• This is a long-term strategy — not a get-rich-quick plan.

• Best done with a tax-savvy financial advisor or accountant.