Frequently Asked Questions
Is the Smith Manoeuvre Legal?
The Smith Manoeuvre uses the common tools of Canadian financial institutions and CRA (Revenue Canada). It has been reviewed by the CRA and endorsed by economists, financial planners and financial institutions. It is a legal and common practice to deduct interest when you borrow to invest to produce income.
How can debt be good?
Debt is good when it is tax-deductible. It is bad when it's the wrong kind of debt - the kind that is not deductible against your income. Bad debt can be converted to good debt if you employ The Smith Manoeuvre. Wealthy people have debt, and they like it that way. They use their after-tax cash for toys and holidays. However, they borrow to invest and deduct the interest on those investment loans. That's called "good debt" and it's how the rich become richer. If you have house mortgage debt, it is the wrong kind of debt until you convert it to tax-deductible debt. The Smith Manoeuvre's streamlined techniques show you how to make it happen.
Can I really get free money?
Yes. By converting your mortgage into a tax-deductible loan, you are turning the interest into a tax deduction. When you subtract that deduction from your income, you get a tax refund. That refund is free money. You don't have to invest any of your own income or increase your debt to get the tax refund.
The refund you receive from investing in RRSPs is not free money. You pay for your RRSP by using your own after-tax income to buy the tax refund.
What is new and different about The Smith Manoeuvre?
It is a new method of designing your finances that extends the remarkable benefits of debt conversion to almost anyone with a mortgage. Wealthier Canadians commonly employ expensive tax accountants and tax lawyers to replace their non-tax deductible loans (houses, vehicles) with investment loans. Fraser Smith has improved upon those methods, introducing a new procedure that enables the rest of us to convert our non-deductible mortgage to a tax-deductible loan.
This is a one-of-a-kind strategy that has been used by hundreds of Canadians. It is the first time the unique techniques have been published. Until now, debt conversion practices have been too cumbersome and expensive for most people. The Smith Manoeuvre changes that. While others recommend paying off the mortgage and Then borrowing to invest, The Smith Manoeuvre shows you how to do both at the same time. Sooner is better in both cases.
Will I be risking my house?
The Smith Manoeuvre actually protects your home ownership by increasing your financial security significantly. Your debt level need not be increased. Your mortgage is reduced while your portfolio grows. When your mortgage is fully converted, you can expect that the value of your portfolio will exceed the amount of the investment loan, which you can then pay off. Or leave in place to continue to generate tax refunds. Your choice.
You can build a safe portfolio using a good financial planner and sound investment practices. Risk is spread out over a long period of time, making unpredictable market conditions manageable. The higher risk is not investing at all, or not investing soon enough, to meet the needs of retirement and periods of insecurity. This is why an increasing number of seniors are ending up house rich, but cash poor, with little or no retirement income on which to live.
The large increase in the number of seniors forced to take a Reverse Mortgage is proof of that. A mortgage loan is the wrong kind of debt. The interest, paid for with after-tax income, over a long amortization period, severely hampers your financial future. If your home is your sole investment, you have put all your eggs in one basket. House values may drop as baby-boomers retire, causing a reduction in demand. Diversifying your investments, and investing earlier in life, is a safer course of action. Hundreds of people have used or are currently using The Smith Manoeuvre. If you're going to have a mortgage debt, why not turn it into a "good debt" that generates tax refunds, just like they did?