Unfortunately for us living in Canada we do not enjoy the same mortgage interest deduction as our counterparts to the south do. Here in Canada we have to be creative when it comes to paying off our mortgage, which happens to be the biggest debt of your entire life. When talking with your Toronto Mortgage Broker to figure out the best way to pay off your mortgage, make sure to mention the Smith Maneuver which is a powerful financial method that restructures your mortgage debt gradually into a deductible investment loan. At the same time you will receive tax refunds, reduce years off your mortgage, and increase your net worth. This maneuver is legal and follows all the methods that are reviewed by the Canada Revenue Agency. The move takes some time and does not happen overnight. The following steps are how you convert your mortgage into a tax-deductible debt.
Take all your assets from non-registered accounts and liquidate them and then apply that towards your down payment for the next step.
Obtain a re-advanceable mortgage from a trustworthy financial institution. This allows you to pay down the mortgage and increase the credit limit at the same time.
Withdraw the HELOC portion of your mortgage to invest it in income-producing assets, such as preferred dividend paying shares or exchange traded funds.
Deduct the annual paid interest from your HELOC when completing your tax return.
Take the investment income and apply it towards your non-deductible mortgage and invest the new HELOC money that is made available.
You are going to repeat steps 3-5 until your non-deductible mortgage is paid off.
There are many benefits to the Smith Maneuver, such as increasing your net worth as long as you can maintain the same annualized return in your investments as your borrowing rate. The Smith Maneuver allows you to pay off your mortgage faster and transfer the debt you have into a tax-deductible format.
There are risks associated with the maneuver as it does not decrease your debt, it simply just transfers it. You need to follow the correct steps outlined by the CRA or they will invalidate your application and your primary benefit of the Smith Maneuver will cease to exist. You must have a solid investment plan that will yield more than your borrowing rate otherwise the maneuver will not have any effect.
If you want to pay off your mortgage faster and transfer your debt into a tax-deductible account contact Rakhi Madan Mortgage Agent Toronto. They can guide you into transitioning into the maneuver and mitigate the risks for yourself. Mortgage debt is not easy on anybody and these mortgage brokers can make the process easier on your mind.