The Smith Manoeuvre: an Overview

Is your mortgage TAX DEDUCTIBLE?

Let your mortgage work for you by utilizing a new Financial Strategy that allows Mortgage Interest to become a Tax Deduction

A new technique developed by B.C. financial strategist, Fraser Smith, is being heralded for giving ordinary taxpayers the same advantages as the wealthy. "The rich may be getting richer, but rather than complain, we can learn from their methods," says Smith. The Smith Manoeuvre makes a Canadian mortgage tax deductible, generating tax refunds for home owners. Ed Rempel, C.M.A., CFP, of Armstrong & Quaile Associates, a Brampton based financial advisor and tax accountant has become the main expert on The Smith Manoeuvre in the GTA. He is spreading the word by hosting a series of complimentary seminars aimed at educating the average Canadian, by introducing them to a streamlined, new method of making their mortgage interest tax deductible.

In Canada, 90% feel that "I can't seem to get ahead." Rempel calls these Canadians the "not-wealthy". "What we are really looking for is security", says Rempel, "but we tend to think security comes from paying off our mortgage, when real security comes from having a huge nest egg of investments."

According to Ed, "this blind devotion we have to mortgage pay-down is paralyzing our chances of ever becoming financially secure. As a result, too many Canadians retire "house rich and cash poor." Later in life, they are forced to go back into debt, often using a Reverse Mortgage. The rising popularity of the Reverse Mortgage is a symptom of what's wrong with the way most Canadians deal with their mortgages."

The Smith Manoeuvre actually reverses the mortgage long before retirement, converting it from bad debt into "good debt." It effectively uses the equity that is building in your home and doing nothing, converting it to an investment loan. This is "good debt," because it is tax deductible and generates large annual tax refunds. It can be used to purchase investments that can grow many times faster than the interest on the loan over time.

In the U.S. where mortgages are tax deductible, one in fourteen Americans are millionaires. This is because they don't even try to pay off their mortgages. As soon as they have a home, they focus on building their investment nest egg. Of these millionaires, 90% keep a significant mortgage. Why? If you can borrow at 4% and get almost half of this back in income tax refunds, it really only costs about 2%. It is not hard to find an investment that makes more than 2% after tax.

Most of us would like to become a millionaire. Achieving millionaire status is actually not difficult or out of reach once we start thinking like a millionaire. The first step is to stop thinking like the "not-wealthy" and discard the limiting beliefs about having to pay off debt and being scared of investing. Once we change our focus to ways of building wealth, we use the magic of compounding to grow a substantial nest egg. The wealthy are more likely to use professionals to invest on their behalf, so they have the most effective and most tax-efficient investments at their disposal.

The wealthy routinely convert their mortgage debt to tax deductible debt with the help of expensive tax accountants and lawyers. The Smith Manoeuvre improves upon these methods significantly by introducing a simple new method by which the average person can make their mortgage interest tax deductible in a simple and elegant way.

The Smith Manoeuvre is a strategy that actually pays your mortgage off years faster, gets you annual tax refunds and builds a large nest egg - all simultaneously. Best of all this is accomplished without having to use any of your cash flow or having to increase your debt. It utilizes simple and legal tools from CRA.

The expected profit from the Smith Manoeuvre is surprisingly large because of the tax benefits and the magic of compounding over many years. The typical expected benefit over a 25-year period of time is double your current mortgage, so if you now owe $200,000 on your mortgage, you should expect to gain $400,000 without using any of your cash flow. There are many ways to enhance this benefit that can make it several times larger, including one developed by Rempel that he calls the "Smith Manoeuvre with the Rempel Maximum." It is the theoretical maximum possible benefit from the Smith Manoeuvre without using any of your cash flow. Typically, if you have some equity in your home already, the expected benefit from the Rempel Maximum over 25 years is triple the expected benefit from the Smith Manoeuvre, or about 6 times your current mortgage balance.

Since 1984, Fraser Smith had been arranging "The Smith Manoeuvre" strategy for hundreds of Canadians. When he retired, he publicly released his strategy in a new book. Ed Rempel, has enjoyed the benefits of a mortgage that has been tax deductible for 11 years. He has so far assisted more than 100 residents in the Toronto area in setting up their mortgages so they become tax deductible. They learned about this process through their attendance in a series of complimentary public seminars held in Peel in 2004 and these are continuing throughout 2006. This series of seminars were co-sponsored in conjunction with TD Bank, but are now being co-sponsored by George Aitken, AMP of M-Link Mortgage. Most of the major banks have the proper mortgage to initiate the Smith Manoeuvre, each with its own advantages and disadvantages, and there is now finally an excellent mortgage product from a new mortgage company called Merix that is available through mortgage brokers that is designed specifically to work exceptionally well for the Smith Manoeuvre.

Rempel also quotes statistics to show the huge advantages of short term or floating rate mortgages, to obtain the lowest possible rates. He is amazed that the average Canadian spends more than $25,000 after tax in his lifetime by taking out 5-year fixed mortgages instead of a 1-year or floating mortgages. He hires what he calls "all-star fund managers" for his clients, who are among the world's top all-time investors. Ed believes, "By using the right strategies, investing with the world's best money managers and minimizing our income tax, we take the strategies of the wealthy and make them readily available to all Canadians."

Is this legal? Of course. Ed Rempel is a tax accountant and the tax rules involved are actually quite simple – as long as you follow the rules. Fraser Smith has been doing the Smith Manoeuvre since the 1984 and clients of both Fraser and Ed have been audited by CRA. Ed’s own mortgage has been tax deductible since 1994.

Want to find out more? The Smith Manoeuvre is easy to implement, but also easy to mess up. It takes some explaining to understand it properly, especially in Canada where some of our commonly-held beliefs and insecurities about debt and investing tend to prevent us from moving forward. There are many ways to enhance the Smith Manoeuvre as well, so getting proper financial advice in how best for you specifically to implement it is essential. The best advice is to read the book and to attend a complementary seminar to find out all the details and whether the Smith Manoeuvre is right for you.

If you are serious about improving your finances and making smart choices with your money, and want professional advice, Ed Rempel will help you implement the Smith Manoeuvre and any enhancements in the way that works best for you, and as part of a comprehensive review or your finances and your plans for your life.

Ed Rempel, C.M.A., CFP is a tax accountant and certified financial advisor and is the recognized expert in the Smith Manoeuvre in the Greater Toronto Area. He has over 100 clients doing the Smith Manoeuvre and is recognized by Fraser Smith in his book "The Smith Manoeuvre" on page 82 (4th printing – July, 2005)

For more information, or to register for an upcoming complimentary seminar that explores the Smith Manoeuvre, contact Lou-Ann at Armstrong & Quaile Associates: (905)846-9998, E-mail: theresahooiveld52@sympatcio.ca