Tax Deductible Mortgage? The Smith Maneuver Explained
Although Canada does not directly provide home-owners with tax-deductible mortgages, they do offer an investment incentive that enables Canadians to turn their mortgage into tax-deductible debt called the Smith Maneuver. Tax deductible means that at income tax time you receive a refund on a portion of what you paid in interest on your loan.
Made popular by Fraser Smith’s book entitled The Smith Maneuver, this strategy helps ordinary Canadians to access tax benefits that, previously, only the rich could afford to take advantage of. The Smith Maneuver is a debt conversion strategy. By steadily converting your mortgage debt into tax-friendly “good debt,” you will be able to pay off your mortgage sooner while also building wealth for your future. The Smith Maneuver converts your mortgage into good debt by allowing it to generate large tax refunds each year. In combination with these savings, you are able to use this debt to purchase investments which, over time, grow many times faster than your loan interest.
Ninety percent of Canadians feel that they are unable to “get ahead” of their finances. The constant struggle of keeping up with mortgage payments means that the majority of Canadians are unable to build savings for retirement and must resort to government-funded programs that may not be around forever. This focus on paying down debt while putting off savings means that by the time people retire, many are house rich and cash poor. They may have a home without a mortgage but are still struggling to find cash flow each month. Thus, many are forced to turn to less-favorable options such as reverse mortgages. By implementing the Smith Manoeuvre strategy now, you allow time and compounding to be on your side so you can be financially secure in the future. The common misconception that you should pay your mortgage off first and then invest leaves you years behind those who chose to invest early.
The rich may be getting richer, but rather than complain, we can learn from their methods. – Fraser Smith
In the United States, mortgages are tax-deductible. This means that Americans pay significantly less interest each year on their mortgages. Savvy Americans funnel these savings into their retirement investments, helping them build a solid nest egg. One in fourteen Americans have reached millionaire status and, of those, 90% have taken advantage of this tax incentive in order to accumulate their wealth. Although Canadians’ mortgages are not directly tax-deductible, the Smith Manoeuvre allows us to have the same benefits.
It is projected that the number of Canadian millionaires is expected to rise 32% by the year 2020. With sound financial advice and strategies, it is possible for you to be a part of this club. Better Financial is proud to say that it helps its clients work towards and exceed this goal.
Note: The Smith Maneuver strategy must meet guidelines set by the Canada Revenue Agency. It is important that you work with a professional who is familiar with these guidelines and works within them to ensure that you are in-line with Canadian tax laws.
By Andrew W Bradley a licensed Insurance Broker and Financial Services Advisor helping Orleans families since 2011. Combining this with his previous working experience with the Canada Revenue Agency enables him to help a wide range of individuals, families and businesses. As an Independent Broker he devotes time to educating the consumer and implementing comprehensive financial plans for both individuals and businesses in areas including insurance and investments.
The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. I recommend that you obtain your own independent professional advice (preferably me) before making any decision in relation to your particular requirements or circumstances.