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Supreme Court to Review Mortgage Interest Deduction Case

supreme-court-mortgage-case 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).:

  1. Money is borrowed money to buy shares in spouse’s company
  2. The spouse uses that money to buy a house
  3. That house is then mortgaged to repay the investment loan in step 1.
  4. 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.