Have you seen all the Smith Manoeuvre-related “Is your mortgage tax deductible” advertising that some brokers and advisors have been promoting lately?
CIBC investment advisor John Casper, for one, doesn’t like it. He is skeptical of anyone who “packages” leverage (a “strategy that inherently adds risk to investing”) as a “clever and heretofore overlooked way to get tax benefits on your home mortgage.”
Casper says, “for some people, borrowing money to invest may be an appropriate investment strategy. But borrowing money and investing it because you can get a tax deduction on the interest expense is a ridiculous tax strategy.”
The Ontario Securities Commission advises caution when using a home equity line of credit to invest. The regulator says doing so “could be putting your equity, and possibly your home, at risk.”
Investor’s Groups Jack Courtney says borrowing against your home and investing that money is only suitable for “those that are investing for the long-term (a minimum of six years) and are able to ride out market fluctuations.”
Courtney advises that homeowners should be comfortable with risk, be in a high tax bracket, and have sustainable monthly cash flow.
Keep in mind, none of this means the Smith Manoeuvre doesn’t work. It just means you have to be very cognizant of the potential downsides. As usual, when it comes to investing, never rely solely on what you read on the Internet. Always, talk to a licensed financial/tax advisor.
Just as an aside, we’ve talked a lot about the Smith Manoeuvre’s potential benefits. We’ve also helped a lot of people set up Smith Manoeuvre mortgages. Nonetheless, frankly speaking, we’re starting to worry about all the hype out there. It’s a good strategy for some but, by no means, for all.
Wait now, I thought the Smith Manoeuvre was very specifically the selling of assets to pay your mortgage to get a HELOC to buy back your assets, not just borrowing against your house to invest . . . am I way out in left field here?
Hi Traciatim,
It also involves extracting equity from your home as you make your monthly payments. This equity is then invested.