Equity Associates Inc. is not affiliated with this strategy. Please speak with your financial advisor for more details.
Convert mortgage interest into tax-deductible interest while increasing your retirement savings at the same time. The Smith Manoeuver achieves this goal. Find out more below:
Although Canada does not allow home-owners to write off their mortgage interest, the government does offer an investment incentive that allows Canadians to turn their mortgage into tax-deductible debt. Tax deductible means that, at income tax time, you are refunded a portion of the interest paid on your loan. Made popular by Fraser Smith’s book entitled The Smith Manoeuver, this strategy helps ordinary Canadians access tax benefits that, previously, only the rich could afford to take advantage of.
The Smith Manoeuvre is a debt conversion strategy. It steadily converts your mortgage debt into a tax-friendly investment loan, which allows you to increase your assets while making any interest you pay tax-deductible. The result is increased net worth and reduced income tax.
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 adequate retirement savings. They will rely heavily on government-funded programs that may not be sufficient.
A focus on paying down debt while delaying personal savings means that, by retirement, many Canadians 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 either sell or refinance their homes. By implementing the Smith Manoeuvre strategy now, you allow time and compounding to be on your side so you can avoid such a situation and 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 Manoeuvre 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.
- Pay off your home sooner
- Convert your mortgage interest into tax-deductible interest
- Receive yearly tax refunds
- Start compounding your savings earlier
- Build your wealth