Smith Manoeuvre Packaging & Risk

Have you seen all the Smith Manoeuvre-related “Is your mortgage tax deductible” advertising that some brokers and advisors have been promoting lately?

Leveraged-investing 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.

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