Tax Deductible Mortgages Canadians - Vancouver, BC

By
Mortgage and Lending with The Mortgage Centre

For years Americans have enjoyed the benefits of being able to deduct the interest paid on their residential mortgage and save on income tax. Some people may say that this benefit is partly why Americans have encountered so much housing trouble as this concept encourages you to keep a high mortgage balance...after all the interest on the mortgage is tax deductible, so why not? Luckily or not, in Canada, we are more conservative. While we don't have all the same benefits in Canada, there is a way to build your net worth and benefit from some legal tax deductions. Fraser Smith popularized this strategy with the release of his book entitled "The Smith Manoeuvre". He's not reinventing the wheel with this book; however he does bring forth a lot of common sense and good advice.  His book takes up many pages and to offer a summary in this space would not be doing anyone justice, therefore I will offer up the basic idea behind it and give you some recommendations as to whether or not it's right for you.   

The book explains in detail the concept of borrowing money against the equity in your home and then investing that equity in order to make that portion of the interest paid on your mortgage tax deductible.  As you build your equity, your investment portfolio builds and so does your tax deduction. It's in my view a very sensible approach for Canadians and our sensible approach to fiscal matters is perhaps something that has contributed to enabling our real estate market to remain quite stable despite the economic doom and gloom down South.  

This strategy is for you if you have at least 25% equity in your home and are not adverse to some risk associated with investments and can keep the proper paper trail associated with tax deductible mortgages to keep Canada's CRA happy. This strategy is not for you otherwise. It's a bit complicated to manage and few lenders offer the RIGHT type of mortgage product to more easily enable the reallocation of debt from one account to another. Currently I'm aware of 3 lenders who do offer the types of mortgages to keep your accountant and Canada Revenue Agency happy. Merix Financial, FirstLine Mortgages and National Bank offer these types of "all-in-one" sort of mortgages that can automatically reallocate the equity to a readvancable credit line.   

For more info on how to make your mortgage tax decuctible in Canada or to find out any other current mortgage info feel free to call me anytime at 604-790-7253 or send me an email to mortgageteam@live.ca.

Comments (3)

FN LN
Toronto, ON

Are all accountants happy with the Smith Manoeuvre?  I've spoken with some who don't like it as well as at least one mortgage agent who told me that when he talks to accountants, many don't like it.  Has CRA issued any reassessments relating to usage of the Smith Manoeuvre?

Jan 13, 2010 08:46 PM
Scott Leaf Personal Real Estate Corporation
Keller Williams Elite Realty, Port Coquitlam, BC - Port Coquitlam, BC
Scott Leaf & Associates Real Estate Team

Americans ability to deduct interest on a principle dwelling is completly offset by the duty to pay capital gains tax on the sale.  I like our system the way it is :)

Jan 17, 2010 04:34 AM
Kathy Clulow
RE/MAX All-Stars Realty Inc. Brokerage - Uxbridge, ON
Trusted For Experience - Respected For Results

Ralna - welcome to the rain - Over the years we have used the equity in our home to finance investments several times and written off the interest expenses each time. You can also write off a portion of the interest if you have a home office or business.

Jan 17, 2010 02:35 PM