r/smithmanoeuvre

Do you account for inflation in addition to the after tax HELOC interest rate when determining if your usage of the smith manoeuvre was value additive?

For example if my after tax heloc rate is 3% and my investments earn a nominal return of 3%, it seems that I have essentially done a sub optimal thing by doing the smith manoeuvre. Since I have taken on risk to earn a negative real rate of return. Isn't my actual breakeven rate ~5%? Which in turn seems like a much tougher hurdle to beat over time. What am I missing?

My current term ends in March 2027. Currently have variable rate of 3.08%. I am looking to get HELOC with Readvanceable Mortgage. Should I wait till my term ends or start applying for Readvanceable mortgage at RBC, TD or BMO. I see RBC is giving good rate on 3 year fixed. My current lender doent not offer Readvanceable mortgage

Hi, I am looking for examples of real people who have charted the amount of years that it took to pay off their primary mortgage faster. A mortgage broker told me that I could pay off my primary residence in 3 to 4 years and spent another five years paying off the HELOC. I have about $10,000 in rental income and about 1500 of it is cash flow. Primary mortgage balance has $374,000 left and the value is $575,000.

Hi all, appreciate insights / help into how to correctly set this up. I recently found out that I can pay my rental expenses using my HELOC (newb I know).

My current setup is that I have all rental property rent and expenses coming out of my primary TD bank account. Same account as I have my regular pay cheque going into and also the accoount I use to also pay my primary mortgage and primary house expenses out of.

Can I withdraw money from my TD HELOC to this same bank account as long as the amounts match some of my rental expense I.e. the amounts I pay for property taxes on the rental property plus other rental expenses?

Or do I have to be set up a separate chequing account to pay my rental expenses out of and replenish it with using the HELOC. I was using the primary account just so it always ensured I had money in that account from my employment.

Thanks and please let me know if you need more information.

Hey everyone,

Quick sanity check. When I first set things up, my bank deposited about $2,000 into my HELOC (some kind of adjustment related to the mortgage). I didn’t realize yet. The next day I borrowed $180,000 from the HELOC and invested it to start my Smith Maneuver. Then the day after I realized the bank deposited the $2,000 into my HELOC, rather than my chequing account. I pulled that $2,000 out to my personal account.

So that small amount got mixed in around the same time as the investment borrowing.

The $180k is clearly invested, but I’m wondering if that $2k movement creates any tracing issues or affects deductibility at all.

Summary:
May 1: bank deposits 2k into HELOC
May 2: I transfer 180k into SM investment account
May 3: I transfer the 2k into personal chequing

Am I overthinking this, or is this something I need to fix/document?

Thanks in advance!

I have a general idea about Cash Damming but I keep getting confused when people say 'Keep a separate flow of funds'. Here is what I have prepared (see image below).

https://preview.redd.it/cu207ex5sw0h1.png?width=1357&format=png&auto=webp&s=2843f582d2bcce9c92dd4bfe7315fb8354e2d316

Summary:

1. Rent is always collected in Wealthsimple (WS) checking account for both rental properties
2. Rental 1: Withdraw the mortgage of $2,500 from Scotia HELOC and pay the mortgage
3. Rental 2: Withdraw the mortgage of $2,500 from RBC HELOC and pay the mortgage

Questions:

1. Will this pass CRA test? its a clean structure each chequing account is used for that mortgage only.
2. Do i need a chequing account in Scotia and RBC becasue they charge monthly fees and WS is free?

Other Tips:

Scotia HELOC is only advanced at $10,000 increments. Meaning once the readvancable loan has $10,000 only then scotia will activate HELOC. I dont think RBC has this rule, you have access to your HELOC funds from day 1!! So RBC is better i think?

So I'm typically a XEQT guy, I don't care much about dividends (and much less about individual stocks) and just opt for total returns. But the story changes as I'm reading about SM's accelerated debt swap strategy, namely the whole "Borrow from heloc -> Buy stocks -> receive dividends -> use them for an accelerated mortgage payment -> reborrow from heloc -> buy more stocks" that speeds up the process of paying off the non-deductible mortgage to end up with a deductible HELOC and a steady income stream.

My problem is what do you actually buy to proceed with this strategy? On paper, something like XDIV, VDY, or ZDV would fit the bill nicely with the monthly income they provide. That is, except for the part where the distributions aren't 100% dividends/income, they always contain some return of capital which makes it impractical to systematically withdraw them to use for a mortgage pre-payment.

It seems the only solution to do the debt-swap and remain 100% deductible is to build your own portfolio of individual dividend-paying stocks. Concentrating on canadian dividends already annoys me a bit (but it's a bullet I'm willing to bite), but now it seems the practical way would be to narrow it down even more to the top 15 or so dividend payers to make it more manageable.

Is there a simple and easy solution for no-fuss diversification that still distributes monthly income 100% safe to withdraw without ever any ROC?

I've read about people using VEQT and then leaving the cash distribution in the account until they know the ROC portion to specifically reinvest only the ROC and withdraw the rest, but now we're talking about a single annual accelerated mortgage payment that's like 1.3% dividend yield. Something more in the 3-4% range distributed monthly would be better for the accelerated debt-swap, no?

Hello fellow SM Folks

I just started this journey and I have a few questions I want to make sure I do it correctly so that my interest are 100% deductible. I’m using RBC and have a dedicated account to transfer from HELOC ->account -> RBC DI brokerage.

1. If I bought shares and there is $5 left in my brokerage account do I need to transfer it back into my HELOC?
2. is it better to use own funds to pay interest or interest capitalization?
3. If I go with interest capitalization and put a floater fund of $500 example. If the interest payment goes up, what is the best way to increase this floater for a clean audit trail?

Thank you very much!

I’ve done quite a bit of reading on the Smith Maneuver and just started implementing it with CIBC.

My plan is to capitalize the interest each month, but unsure if I should make the minimum payment into the HELOC then immediately withdraw the funds back to my chequing account or do nothing and have the interest get added to the HELOC.

I understand they’re effectively the same, but is there an advantage to one method over the other? Does the CRA care?

Thanks in advance!

Hey guys, I just wanted to clarify something regarding the Smith Manoeuvre and interest capitalization, since I’m currently implementing it and want to make sure I’m doing it correctly and in a CRA-compliant way.

Here’s my setup:

- I have a HELOC that is being used only for investing purposes.
- I maintain a separate Smith Manoeuvre checking account.
- There are no personal expenses mixed into this HELOC — only investment borrowing.

From what I’ve read, the investment loan interest can be capitalized (i.e., borrowed again so that the interest itself compounds instead of being paid from employment income/cash flow).

So here’s the exact scenario:

Let’s say my HELOC balance is currently $35,000.
At the end of the month, the HELOC interest charge is $118.

The bank does not allow the interest to be charged directly back onto the HELOC itself. Instead, the interest payment has to come out of my checking account.

So what I’m currently doing is:

1. The $118 interest gets debited from my Smith Manoeuvre checking account.
2. I then transfer/re-borrow $118 from the HELOC back into that same checking account.

As a result, my HELOC balance increases from $35,000 to $35,118.

My understanding is that this is effectively capitalizing the interest, since the borrowed funds are being used to pay deductible investment loan interest. However, I just wanted to confirm whether this arrangement is generally considered acceptable and CRA-compliant.

Has anyone here structured it this way?
Any issues from a tracing/documentation perspective?
Anything specific I should be careful about?

Would really appreciate any guidance from people who have implemented this successfully or discussed it with accountants/tax professionals.

Thanks!

Hi everyone,

I’ve been using a TD FlexLine for about 1.5 years for Cash Damming with my rental property. I’ve been using the HELOC portion strictly to pay rental expenses while using the rental income to pay down my primary mortgage.

I’m now looking to shift gears and start using the HELOC for the Smith Manoeuvre (investing in a non-registered account) instead of rental cash damming.

My dilemma:

Since we are mid-year, I’m worried about muddying the waters for the CRA. My TD FlexLine currently allows only one stream/bucket for the HELOC.

Can I change the use mid-year? If I start withdrawing for stocks/ETFs from the same sub-account I was using for rental repairs/utilities, does that create a tracking nightmare for interest deductibility?

TD FlexLine Setup: For those with TD, is there a way to open a second separate HELOC sub-account under the FlexLine to do both that I'm unaware of?

Re: CRA tracing: Is there a clean way to stop the cash damming and start the SM mid-year without triggering an audit flag, or should I wait until Jan 1st?

Has anyone made this switch mid-year? Would love to hear how you structured your accounts.

Bonus question - which line item in the tax form would the SM transactions fall under, the same as the cash dam?

Looking at it from the other angle: What could go wrong, especially from CRA perspective, if I don't implement this correctly?