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.

Lending Requirements

  • 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.

Frequently Asked Questions

Yes, the Smith Manoeuvre is 100% legal. The CRA has reviewed and approved the strategy. That said, you need to make sure you select the correct investments and file your taxes properly. I can help you with setting up a compliant mortgage and can introduce you to accounting and investment professionals, on request.

Nothing. There are no lender or broker fees, and I’m paid a commission from the lender which I’ll fully disclose. On request I’ll refer you to accountants and/or financial advisors, but I don’t receive a referral fee for those introductions.

You get the same interest rate (or often better) as you would at the branch. Very few mortgage professionals are versed in setting up the Smith Manoeuvre, so you get to benefit from my professional experience.

It’s definitely possible. I’d suggest you read the book first to get a base understanding then decide if you want help.

That said, there are a few good reasons to enlist the help of an expert when setting up the Smith Manoeuvre:

  • My services don’t cost you anything, so you can benefit from my experience for free.
  • The book is a bit confusing. I haven’t met anybody that reads it cover to cover then has a crystal clear understanding. There are always questions that come up.
  • If you make a mistake, you probably won’t realize it right away. You could waste a lot of time going the wrong direction.

If you’re in a high personal income tax bracket, then more often than not it’s worth it. If you earn and keep most of your money in a corporation then you should talk to an accountant first to see if there’s a better tax planning strategy you can use.

Whenever you make a mortgage payment, a portion goes to interest and the rest goes to principal. With a readvanceable mortgage, that principal amount immediately becomes available on your home equity line of credit (HELOC).

Mortgage interest is not tax deductible on a primary residence, but it is on an investment. The Smith Manoeuvre is a debt conversion strategy to make the interest on your primary residence deductible.

The Smith Manoeuvre is only as risky as the investments you select as part of the strategy.

Both are correct. However, the Canadian spelling is Manoeuvre and so is cover of the book, so that’s what I’m sticking with.