Smith Manoeuvre
Project deductible interest, HELOC growth, and investment returns for a readvanceable strategy.
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Smith Manoeuvre
Map principal re-advances, capitalized interest, and projected refunds for your strategy.
Calculation notes
Methodology for the smith manoeuvre
Model the Smith Manoeuvre — see how converting non-deductible mortgage interest into tax-deductible investment interest affects your net worth over time.
Track the debt migration from mortgage (non-deductible) to HELOC (deductible) and see cumulative tax savings year by year.
Project investment portfolio growth alongside tax recovery to understand total wealth-building impact.
Use it to determine whether the strategy is worth the effort for your specific mortgage, tax rate, and investment horizon.
Inputs to check
- Mortgage balance and rate
- Marginal tax rate
- Investment return assumptions
- Readvanceable draw plan
Assumptions
- Assumes constant mortgage rate, HELOC rate, and investment return for the modeled period.
- Tax recovery is based on marginal tax rate entered; actual savings depend on individual circumstances.
- Does not model CRA audit risk — clean record keeping and professional tax advice are essential.
- Investment returns are not guaranteed — leveraged investing amplifies both gains and losses.
How this calculator works
Model the Smith Manoeuvre — see how converting non-deductible mortgage interest into tax-deductible investment interest affects your net worth over time.
Track the debt migration from mortgage (non-deductible) to HELOC (deductible) and see cumulative tax savings year by year.
Project investment portfolio growth alongside tax recovery to understand total wealth-building impact.
Use it to determine whether the strategy is worth the effort for your specific mortgage, tax rate, and investment horizon.
Inputs you will need
- Mortgage balance and rate
- Marginal tax rate
- Investment return assumptions
- Readvanceable draw plan
Assumptions and limitations
- Assumes constant mortgage rate, HELOC rate, and investment return for the modeled period.
- Tax recovery is based on marginal tax rate entered; actual savings depend on individual circumstances.
- Does not model CRA audit risk — clean record keeping and professional tax advice are essential.
- Investment returns are not guaranteed — leveraged investing amplifies both gains and losses.
Example scenarios
$500K mortgage, 43% MTR, 10-year view
Year 1: $18K invested, $499 tax recovery. Year 5: $90K invested, $2,496 recovery, $3,600 dividends. Year 10: $180K invested, $4,992 recovery, $7,200 dividends. Cumulative exceeds $30K by year 10.
Lower MTR — still worth it?
At 30% MTR with $400K mortgage, year 1 recovery is $348. Year 10: $3,483 recovery. Strategy works but slower — higher MTR means more powerful deduction.
Investment return sensitivity
If portfolio returns 6% instead of 4%, dividends grow faster. If 2% or negative, tax deduction partially offsets but cannot make strategy profitable. Leveraged investing amplifies both gains and losses.
Early exit at year 5
Selling at year 5 with $90K invested: realize portfolio gain/loss, repay HELOC from sale proceeds. Total benefit: ~$7,500 tax recovery + appreciation. If markets declined, loss may offset benefit.
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Frequently asked questions
Does this include CRA compliance?
The calculator models financial math only. It does not provide tax advice or guarantee CRA acceptance. The strategy requires clean record keeping, traceable fund flows, and qualifying income-producing investments in non-registered accounts. Have a tax accountant review your implementation.
What investment return should I assume?
Use conservative, diversified returns — 4-6% total with dividend portion is common. Avoid double-digit assumptions — leveraged investing amplifies losses. A 20% market decline on $100K leveraged = $20K loss on borrowed money, and HELOC interest keeps accruing.
How does the calculator handle variable HELOC rates?
HELOC is typically prime plus spread and variable. Enter your current rate; calculator uses it as constant. For stress-testing, run a scenario 1-2% higher. Rising rates increase both HELOC cost and tax deduction — net cash flow can still be negative.
Is the Smith Manoeuvre worth it for smaller mortgages?
Scales with mortgage size and tax rate. On $250K at 30% MTR, year 1 recovery is ~$218. Setup costs of $1K-$2K take years to recover. Most impactful for $400K+ mortgages, 40%+ MTR, and 10+ year horizons.