Canadian Capitalist Logo Dark
No Result
View All Result
Friday, March 24, 2023
  • Login
  • Register
  • Home
  • Economy
  • Investing
  • Markets
  • Real Estate
  • Retirement
  • Tax Savings
  • Trivia
  • Resources
Subscribe
Canadian Capitalist Logo Light
  • Home
  • Economy
  • Investing
  • Markets
  • Real Estate
  • Retirement
  • Tax Savings
  • Trivia
  • Resources
No Result
View All Result
Canadian Capitalist Logo Mobile
No Result
View All Result
Home Uncategorised

DIY Smith Manoeuvre, Part 4

by Ram Balakrishnan
December 16, 2007
Reading Time: 2 mins read
128 6
0
age at which rrsp must be converted to rrif
153
SHARES
1.9k
VIEWS
Share on FacebookShare on TwitterShare on Linkedin

This is the fourth part in a series on implementing a do-it-yourself Smith Manoeuvre. You may also want to check out Part 1, Part 2 and Part 3 of the series.

Now that you are regularly withdrawing funds from the loan portion of your readvanceable mortgage and investing the proceeds in equities, there is only one step left: taxes. You should keep track of the interest paid on the investment loan, calculate the total interest expenses for the financial year and report it in Schedule 4 and Line 221 of your T1 General.

When your tax return is processed and a refund is issued, you should use the refund to pay down your mortgage and take out a loan and invest it to get the full benefit of the Smith Manoeuvre.

Notes:

  • I’ve said this before and I’ll say it again: Check with your accountant before implementing the SM. I’ve personally never borrowed money, invested it in index funds and claimed a tax deduction of the interest expense. So, check with your accountant or tax advisor.
  • Despite the complexity, SM is simply a leveraging strategy. As you may know, leverage cuts both ways. There is no guarantee that even over the very long term, equities will return more than the interest you pay on the loan. That’s the risk of implementing the SM. Don’t believe anyone who tells you otherwise.
  • In the interests of full disclosure, I have no intention of implementing the SM. I simply pay down the mortgage and am happy with guaranteed, risk-free, after-tax return of roughly 5%.
  • An adverse tax ruling is a risk with the SM and even if interest deductions are currently allowed, they may not be in the future. For example, in the 2004 Quebec budget, interest deduction was limited to the amount of interest income in that year.
  • Related posts:

    1. Finding a Financial Advisor, Part 1
    2. Carnival of Debt Reduction # 19
    3. The Income Tax Cut is Better
    4. This and That
    Share61Tweet38Share11

    Get real time update about this post categories directly on your device, subscribe now.

    Unsubscribe
    Previous Post

    This and That

    Next Post

    QuickTax Disappoints

    Ram Balakrishnan

    Ram Balakrishnan

    Related Posts

    Why you cant afford a house in Canada

    Why You Can’t Afford A Home In Canada?

    January 24, 2022
    365
    investing benefits
    Investing

    Finding a Financial Advisor, Part 1

    June 19, 2021
    2.1k
    investing in bitcoin

    Is it time to invest in Bitcoins again?

    May 13, 2019
    2k
    when do reits liquidate
    Uncategorised

    Performance of Currency-Neutral S&P 500 Index Funds

    January 19, 2014
    2k
    is mortgage interest tax deductible
    Uncategorised

    The 2013 Sleepy Portfolio Report Card

    January 12, 2014
    2k
    how to buy individual stocks in canada
    Uncategorised

    Asset Class Returns for 2013

    January 5, 2014
    1.9k
    Next Post
    QuickTax Disappoints

    QuickTax Disappoints

    Please login to join discussion
    Canadian Capitalist

    © 2022 Canadian Capitalist

    Navigate Site

    • Home
    • Disclaimer
    • Privacy Policy
    • Advertisement
    • Contact Us

    Follow Us

    No Result
    View All Result
    • Home
    • Economy
    • Investing
    • Markets
    • Real Estate
    • Retirement
    • Tax Savings
    • Trivia
    • Resources

    © 2022 Canadian Capitalist

    Welcome Back!

    Sign In with Facebook
    Sign In with Google
    Sign In with Linked In
    OR

    Login to your account below

    Forgotten Password? Sign Up

    Create New Account!

    Sign Up with Facebook
    Sign Up with Google
    Sign Up with Linked In
    OR

    Fill the forms below to register

    *By registering into our website, you agree to the Terms & Conditions and Privacy Policy.
    All fields are required. Log In

    Retrieve your password

    Please enter your username or email address to reset your password.

    Log In
    This website uses cookies. By continuing to use this website you are giving consent to cookies being used. Visit our Privacy and Cookie Policy.
    two man and woman standing on doorway
    The man who does not read has no advantage over the man who cannot read - Mark Twain