What is the Smith Maneuver?
The Smith Maneuver is a legal tax strategy that that effectively makes the interest on a residential mortgage tax deductible in Canada.
We do this by converting the interest a homeowner pays on their mortgage into a tax-deductible investment loan.
Not utilizing the Smith Maneuver for the purchase of a rental property is probably the biggest, over looked mistake most purchasers make when purchasing a rental property. It is important that you use a team of professionals that understands the rental market and the necessary structure involved.
To set up the Smith Maneuver you want to set up a HELOC (home equity line of credit) on your principle residence. For best results we recommend the Manulife One product. That said, other HELOCS like the Scotia Step or similar products can work ,or even a temporary secured line of credit product until your current mortgage comes up for renewal.
If you are sitting on cash for the 20% down payment required to purchase a rental property, take the money and reduce your current non tax deductible mortgage and increase your line of credit borrowing back the 20%. Know you can use that down payment as a tax deduction and reduce your current mortgage on the principle mortgage.
The goal in the end is to create a 100% tax deduction on the rental property while reducing your principle mortgage.