Canada - Vancouver British Columbia - Smith Maneuver?

Question

Hey Everyone,

New investor and student. I was curious if some of you fine people here at BiggerPockets can enlighten me about the Smith Maneuver in Canada. I understand the idea but I think some real examples would help clarify things for me. So, if anyone out there can help shed some light on this, in as much detail as possible:) (pro/cons,etc) that would be great. Thank you!

Also, I am at the point where I will be getting my first property soon. Is this something that a first-time investor can implement.

Christopher H. · Answer

@Tomislav Glamuzina

Its a pretty neat and simple concept.  The idea is to turn your home into a source of tax efficient leverage to grow your wealth. Here is a top down

1) Purchase a home with a re-advanceable mortgage(or similar).  As you pay down your mortgage that equity becomes immediately available to use.  2) You take those newly available funds and put them into an income generating investment.  For example, stocks that pay a dividend or a rental property that cash flows.

3) You take the income from those investments and put it towards your mortgage.  Which in turns creates more funds available to sink into your investments to create more income and the cycle continues.

Its important to note that interest on your mortgage is not tax deductible, but interest on lines of credit is when it is used for investments.  There is some nuances depending what you want to invest in and it is always a good idea to confirm your plan with your accountant or similar advisor.  You need to be very disciplined with how you use those funds also.

This can be a really strong tool to build wealth if used properly and in the right scenarios.

I'm a mortgage professional in Canada you can dm me if you want to discuss it further.

Hope that helps