The Smith Manoeuvre Resource

1. 1. David

   I’m not certain how this will apply, but people should be aware that the Supreme Court of Canada will be hearing the case of Ludco, and will likely making a statement about the ability to deduct interest for investment purposes.

   While Ludco is an interesting case and there are a lot of issues that don’t apply to a person doing a SM, the Supreme Court doesn’t take cases unless they want to make pretty broad statements on the law.

   I don’t know if they will overrule Singleton, the case that opens up the law for SM, though it was possible before the decision, but if you’re planning on doing it, or are doing a SM, pay attention to this case.

   Mar 5th, 2008 @ 12:42 pm

2. 2. FrugalTrader

   David, i’m skeptical that they’ll cut out the tax deductibility of investment loans. If they cut that out, that would mean that they would have to cut out the tax deductibility of expenses for a business! Afterall, that’s what business expenses are, they are used to produce INCOME for the business which is exactly what an investment loan does.

   Mar 5th, 2008 @ 1:08 pm

3. 3. David

   FT, they may suggest that such loans are still available for active business income, rather than passive. The ITA draws this distinction already.

   I’m not going to lay odds on it, but the CRA has been negative on the “Singleton Shuffle”, so the Supreme Court may use this opportunity to tell the CRA to allow the deductions, or they may agree that GAAR, which was not argued in Singleton, applies and this is merely an avoidance technique for people investing in passive streams.

   Mar 5th, 2008 @ 4:01 pm

4. 4. Deborah

   Leveraged funds are unwinding…

   http://globaleconomicanalysis.blogspot.com/2008/03/hedge-funds-unravel.html

   Mar 5th, 2008 @ 10:19 pm

5. 5. The Financial Blogger

   Great resource!
   I think I will review some of them… It is always good to go back to the basics after a while…

   Mar 6th, 2008 @ 8:28 am

6. 6. str8jkt

   Might want to add your latest post – the blueprint one, to this thread..

   Mar 6th, 2008 @ 1:09 pm

7. 10. Chinstrap

   First of all, great website!

   I have used a simple version of the SM in the past – credit lines on my principal residence, plus dipping into margin in my brokerage accounts. This has allowed substantial tax deductions in the past..

   But Question.. now that our mortgage is paid off, what rules, guidelines do people follow to determine how much leverage to put on the house to then invest in equities, mutual funds, etc.?

   I managed to pay off my principal residence through stocks but mainly via buying and selling principal houses/condos.. Perhaps another discussion point

   May 14th, 2008 @ 1:13 pm

8. 11. FrugalTrader

   ChinStrap, if you have your principle residence paid off, you can borrow up to 80% of it’s value in the form of a HELOC without incurring any CMHC fees. If you have a higher risk tolerance, and a little more aggressive, you can use that money to invest in equities and claim a tax deduction on your interest paid.

   That’s in essense what the SM ends up to be. When the non ded mortgage is paid off, the tax ded investment loan will remain.

   May 14th, 2008 @ 1:19 pm

9. 16. PhilC

   For a smith manoeuvre:
   If the house is jointly owned and the HELOC is joint. Does the investment account need to be joint also? Does this affect tax-deductibility?

   Sep 18th, 2008 @ 5:06 pm

10. 17. Ed Rempel

    Hi Phil,

    The tax ownership and the legal ownership can be different. You can borrow jointly but invest the money in an account in your name, your spouse’s name, or a joint name. Then you can decide who has officially borrowed and that person(s) can claim the interest deduction and claim any taxable income on the investments.

    However, once you claim it once, you cannot really change it in the future without repaying the loan and reborrowing again – so think carefully about who you consider to be borrowing to invest. It should be the one that would benefit the most over the long term.

    Ed

    Sep 18th, 2008 @ 9:57 pm

11. 20. Ray

    Can the Smith Manoeuvre be used in Quebec?

    Nov 19th, 2008 @ 2:25 pm

12. 22. Jay Day

    Frugal,

    Just wondering if you know how the TFSA will affect the Smith Manouvre. Will you be able to start the SM and use the TFSA as well to maximize your investment/ paydown of your Mortgage by using the dividends and or capital gains to pay down your debt quicker?

    Thanks

    Jan 29th, 2009 @ 11:11 am

13. 23. FrugalTrader

    Jay Day, on the surface, the TFSA and SM accounts are completely separate. You lose the tax deduction if you use the investment loan within a TFSA. However, you can use the TFSA distributions (if you buy income securities) to pay down your mortgage which can then be reinvested within your SM portfolio without any tax penalty.

    Jan 29th, 2009 @ 11:23 am

14. 24. Jay Day

    Thanks Frugal,

    Thought it might be too good to be true. Unfortuneately, the only way to come up with the capital to invest in the TFSA is to borrow on the secured line of credit. I guess with the prime rate so low (3%) if you find some good dividend paying securities you could use the TFSA and the dividends from within it to pay the interest costs and still have some left over to increase your SM. Does that make any sense to you.

    Thanks

    Feb 4th, 2009 @ 4:26 pm

15. 25. Tron

    Hello.

    I love your web site!. Brilliant!.

    I am planning to start the SM and was wondering how people set up Quicken to manage it. I am not sure how I would set it up at all.

    I was thinking of setting up a liability sub account for the LOC under my mortgage account. Then, I would transfer from the LOC account to my SM brokerage account and purchase from there. By doing the LOC as a sub account of the mortgage, as the mortgage is paid down and the LOC is increased, the total balance (debt) should stay the same.

    How are others doing it in Quicken (or KMyMoney)?

    If this not the correct place to post a question like this…Sorry!!!

    Feb 27th, 2009 @ 1:26 am

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