Canadians who employ the Smith Manoeuvre, cash flow dam, and other mortgage interest deduction strategies will find this case of interest.
The Supreme Court of Canada is taking another look at Lipson v. The Queen (link to appeal #2).
The Lipson case explores whether the following sequence of events is “abusive” and violates CRA‘s controversial general anti-avoidance rule (GAAR).:
- Money is borrowed money to buy shares in spouse’s company
- The spouse uses that money to buy a house
- That house is then mortgaged to repay the investment loan in step 1.
- The homeowner writes off the mortgage interest.
The Lipson strategy differs from the Smith Manoeuvre in many key ways. However, the top court’s decision could still pass judgement on facets that the Smith Manoeuvre has in common with Lipson, so stay tuned.
The case will be heard in 2008.
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Last modified: April 25, 2014
We’ve received many questions about how this case might impact the Smith Manoeuvre. We must ask that since we’re not attorneys, do not rely on our opinions.
Instead, we’ll keep passing along commentary from experts as we find it.
Here is one link from CALU, for example, that compares Lipson to the typical Smith Manoeuvre arrangement. They say:
“One potentially important factor distinguishing [a Smith Manoeuvre] scenario from Lipson is that the borrowed money is not indirectly applied to pay for the house. This could be sufficient to protect the strategy from the GAAR.”