Smith Manoeuvre Overview
The Smith Manoeuvre is a one-time restructuring of your mortgage (with a little bit of regular maintenance) that converts your mortgage interest into tax refunds, all while building your portfolio of investments for retirement.
As a Smith Manoeuvre specialist, I can provide you with step-by-step guidance to make sure your mortgage is properly set up for success. I can also introduce you to accounting and investment professionals to help you in the next steps of your journey.
Work With a Smith Manoeuvre Certified Professional Mortgage Broker
Who should do the Smith Manoeuvre?
The Smith Manoeuvre is a sophisticated tax strategy most suited if you’re in one of the higher marginal tax brackets. The higher your personal income taxes, the more benefit you’ll see. It also works best if you have a relatively high discretionary income, meaning the money left over after you pay for your taxes and necessities like food, mortgage, utilities, etc. I.e., You don’t spend everything you earn.
The Smith Manoeuvre cannot be used to reduce corporate taxes. It’s only for income you declare on your personal taxes. Examples include salary/commission/hourly income, self-employed income from a proprietorship, rental income, or investment income.
- Income – You should have stable, verifiable income. If self employed you need to have more than 2 years in business. If salaried you need to be off probation and be able to produce pay stubs, T4s and a letter of employment.
- Down Payment – You need at least 20% down payment (if purchase) or 20% equity (if refinance). It doesn’t work on high ratio mortgages with less than 20% down. If that’s your situation, you’ll just need to wait until you pay down your mortgage a bit and/or your home value increases to a point where we can refinance your home with enough equity.
- Assets – The Smith Manoeuvre strategy can be accelerated if you have liquid, non-registered assets. Cash, stocks, bonds, mutual funds, etc.
- Credit – Excellent credit is required. Small exceptions within reason can likely be accommodated on a case-by-case basis.
- Property Use – This strategy works on your primary residence. Rental income can be used to accelerate the Smith Manoeuvre strategy.
- Investment Properties – You can have up to a few properties in your name, but there’s a limit to how many properties you can have in your name.
How it works
Implementing the Smith Manoeuvre is fairly straightforward once you understand how the money flows. But at first the concepts can feel a bit overwhelming if you only read the Smith Manoeuvre book without talking it through with somebody experienced with the strategy. I’ve created internal resources for my clients to simplify the concepts to their core. So if you’re a bit confused now, don’t worry – it should all become clear with a few flow charts and diagrams.
Step 1: Book a discovery call
When you reach out we’ll book a 15-30 minute call. We’ll go over your financial situation, goals, concerns, and the Smith Manoeuvre strategy itself. If you’re a good fit and you’re interested in learning more, I’ll send you a checklist of documents needed to move forward. At this point I leave the ball in your court to mull it over and (if applicable) discuss it with your spouse. If necessary we can have a follow up call to answer any questions that arise after the initial discovery call.
Step 2: Perform a cost-benefit analysis
Once you send me your documents I’ll take a couple days to perform a complete analysis of your financials. Then I’ll put together a report of the expected long-term benefit you can expect from implementing the Smith Manoeuvre strategy. We’ll discuss lender options and timeline.
Step 3: Setup your mortgage
When you’re ready to move forward I’ll submit your application to the lender we discuss in Step 2. I’ll work to secure an approval and satisfy the lender conditions which usually takes about a week to 10 days. Then the lender will send instructions to your solicitor so you can go in for a signing meeting.
Step 4: Implement the strategy
Once the mortgage funds we’ll wait a few days for you to gain access to your online banking accounts. I’ll then coach you through the account setup, the flows of cash, and provide you a checklist of what to do each month, quarter and year at tax time. If needed I’ll introduce you to financial advisor and/or tax accountant well versed in the Smith Manoeuvre strategy.