That is a great question.
The Smith Maneuver was invented by a gentleman named Fraser Smith, from Victoria, who set the program up back in the 80’s down on Granville. He is a financial strategist and he realized that people who were making more money than common folks, were taking advantage of the fact that they could take the interest on their mortgages and tax deduct it. And so what he did is he found a way to do that for common folks and how we as individuals can take some of the interests we’re paying on our current home mortgages and deduct that as a tax-deductible expense.
Rather than having a fixed mortgage, you’re going to have a variable mortgage, which would be a prime and then you have all your debts in that particular portfolio. As you have an investment, because you’re going to go up to the maximum of your mortgage, you’re going to have a tax-deductible expense. And so when you claim as a tax-deductible expense, you get a refund next year, take that refund, pay down the line of credit, that’s the global line of credit for your home, and now you invest that increased money back into another investment.
Catch Bill Macklem of Dominion Macklem Mortgages at BilliMac.com every Saturday morning at 10am on the AM650 Radio Real Estate Show in Metro Vancouver with host Tom Lucas and Sheri Brown.