Tax Deductible Mortgage Strategy

Smith Manoeuvre Calculator Canada

Also known as the Smith Maneuver or Tax Deductible Mortgage Strategy.

Stop paying your mortgage with after-tax dollars.

Most Canadians treat their mortgage like a simple debt to eliminate. That is not wrong, but it is incomplete.

With the right readvanceable mortgage and HELOC structure—and a clean paper trail for interest tracing—you can convert part of your non-deductible mortgage into potentially deductible investment debt over time.

Use the fields below to run a Smith Manoeuvre (Smith Maneuver) projection using a simplified model. This is an educational tool for Canadian borrowers and is not tax or investment advice.

Mortgage details

Current home valueMortgage amountMortgage rate (%)Mortgage amortization (years)HELOC rate (%)

Income & taxes

Annual gross income

Province

Marginal tax brackets are approximated using basic rules and only for Alberta and British Columbia. This is a simplified model and may not match your actual tax situation.

Savings & investments

Monthly savingsLiquid assets savedExpected invested rate of return (%)

Accelerators

Prime the pumpUse existing home equity up front to seed your investment portfolio instead of waiting for regular paydown.Debt swapUse existing non-registered investments to pay down the mortgage, then re-borrow and reinvest to convert debt faster.Tax refund prepaymentApply estimated tax refunds as lump-sum mortgage prepayments to speed up the conversion cycle.

This calculator uses a simplified, assumption-heavy model. It does not predict future returns or guarantee outcomes.

Educational disclaimer

I am a mortgage broker, not a tax accountant, not a financial advisor, and not a lawyer. This calculator and page are for educational purposes only and use simplified assumptions. You are responsible for your own due diligence.

Before acting, confirm the tax and investment implications with a qualified CPA and a licensed investment professional, and confirm product mechanics with your lender.

Before you do anything

If these are not true, do not implement this strategy yet.

Product setup checklist

You have a readvanceable mortgage (an amortizing mortgage plus a HELOC that re-advances as principal is paid down)
Your HELOC limit increases automatically as the mortgage balance drops
You understand your lender’s rules for re-advancing, prepayments, and re-borrowing
You have a cash buffer for rate changes (HELOC rates can move quickly)

Accounts and separation checklist

You will keep the investing HELOC separate from personal spending
You will use a dedicated non registered investing account for borrowed funds
You will use a dedicated chequing account (or a strict transfer workflow) so the paper trail stays clean
You will not mix borrowed investing funds with day to day spending

Process discipline checklist

You have a repeatable monthly workflow you will actually follow
You will document transfers and keep statements
You accept that sloppy tracing is the fastest way to create problems later

The metric that matters: Mortgage Deductibility Conversion Score

Most online Smith Manoeuvre calculators show pretty charts without answering the decision question:

How efficiently are you converting non deductible interest into potentially deductible interest, without breaking cash flow?

This page uses a decision metric called the Mortgage Deductibility Conversion Score (MDCS).

MDCS is a comparison tool for Smith Manoeuvre scenarios, not a promise of results or tax-deductible mortgage interest in Canada.

How to use this Smith Manoeuvre calculator

Step 1: Mortgage details (readvanceable mortgage, HELOC)

Enter the current home value, mortgage balance, mortgage rate, amortization, and HELOC rate. This assumes a readvanceable (re-advanceable) mortgage structure with an attached HELOC.

Tip: If you have a retirement date in mind, set amortization to match the time horizon you are planning around, then stress test your cash flow.

Step 2: Income and taxes (Canada, province)

Enter annual gross income and province to estimate your marginal tax rate for Canadian tax purposes.

Tax brackets here are approximations and may not match your real return
This model is currently built for Alberta and British Columbia

Step 3: Savings and investments (non registered)

Enter monthly savings, liquid assets saved, and your expected investment return.

Liquid assets saved should be funds in non registered accounts if you plan to use the Debt Swap accelerator.

Step 4: Accelerators (Prime the Pump, Debt Swap, tax refund)

Toggle these only if you understand how they work in real life.

Prime the Pump: Use available home equity upfront to seed the investment portfolio.
Debt Swap: Use existing non registered assets to prepay the mortgage, then re-borrow and re-invest to convert debt faster.
Tax Refund Prepayment: Apply estimated tax refunds as mortgage prepayments to accelerate the conversion cycle.

Tool capabilities and limitations

What this tool does	What this tool does not do
Models a simplified projection based on your inputs	Replace advice from a CPA, lawyer, or licensed investment professional
Estimates potential tax refund impact from deductible interest assumptions	Confirm whether your specific investments qualify for interest deductibility
Shows how accelerators change pace and cash flow pressure	Guarantee returns, rates, refunds, approval, or outcomes
Helps you compare scenarios with the same framework	Tell you what you should do

Can mortgage interest be tax deductible in Canada?

A lot of people have heard: “Mortgage interest is never deductible in Canada.” That rule is true for personal-use borrowing. The nuance is that tax deductible mortgage interest is generally tied to the use of borrowed money and your ability to trace that use clearly.

The rule people repeat

The rule people repeat	The reality you must execute
Mortgage interest is not deductible	Interest may be deductible when borrowed funds are used for an eligible income earning purpose and you can prove tracing
The math is the hard part	The structure and paper trail are the hard part
It is about making more money	It is about debt efficiency and long term net worth engineering

The tracing requirement (paper trail)

In practice, interest deductibility hinges on interest tracing (paper trail): you must be able to show a clean chain from borrowed HELOC funds to an eligible income-producing investment and avoid contaminating that account with personal spending.

Who this strategy is for

Screen	This tends to fit	This tends to not fit
Equity	You have meaningful equity and can access a readvanceable product	You have limited equity or a high ratio mortgage
Cash flow	Stable income and monthly surplus	Tight month to month cash flow
Horizon	Long term investor mindset	Short term timeline expectations
Discipline	You will keep accounts separate and transfers clean	You mix spending and accounts frequently
Risk tolerance	You can handle market volatility without panic selling	Volatility causes reactive decisions

Not a fit if any of these are true

You are already stressed by debt
You rely on credit to cover monthly expenses
Your income is unstable and you do not have a buffer
You will not maintain clean separation and tracking

What is the Smith Manoeuvre in Canada?

Readvanceable mortgage and HELOC explained

At the core of the Smith Manoeuvre is a readvanceable (or re-advanceable) mortgage: an amortizing mortgage paired with a HELOC that automatically re-advances as you pay down principal. Over time, more of your borrowing capacity shifts from non-deductible mortgage debt to a HELOC that funds investments.

The basic cycle (pay down, re-borrow, invest)

You set up a readvanceable mortgage (mortgage plus HELOC linked together).
Each principal payment reduces your mortgage and increases your HELOC limit.
You borrow from the HELOC and invest in income producing assets in a non registered account.
With correct use and clean tracing, the interest on the investment portion may be deductible.
If you receive a tax refund from the deduction, you can apply it as a lump sum mortgage prepayment to accelerate the cycle.

This is exactly what the calculator is designed to help you compare: plain cycle vs accelerators vs conservative inputs.

Common mistakes that break interest deductibility

This is where most people get burned, even if the math looks great.

Tracing and account contamination

Using the investing HELOC for personal spending, even once
Depositing borrowed funds into an account that also pays personal expenses
Moving money around without a clean chain from borrowing to investing

Selling and reinvesting

Selling investments and not maintaining a clear link to an eligible income earning use when reinvesting
Withdrawing proceeds for personal use while still claiming full interest deductibility
Reinvesting in a way that makes purpose and use hard to prove later

Product and execution issues

Switching products or lenders and losing the clean structure
Capitalizing interest without understanding how to keep tracking clean
Relying on internet rules of thumb instead of professional guidance

Mini stress test: HELOC rates and investment returns

This strategy usually fails because of cash flow pressure or behaviour, not because the spreadsheet was wrong.

Scenario	What changes	What to ask yourself
HELOC rate rises 2%	Monthly interest cost increases immediately	Do you still have surplus after the higher interest cost?
Returns are flat for 3 years	Portfolio value may stagnate while interest keeps accruing	Will you stay disciplined and keep investing?
Income is mostly capital gains	Cash flow from investments may be lower	How will you service interest and maintain eligible purpose?

Smith Manoeuvre example

This is not a forecast. It is a way to understand mechanics.

Assume:

Home value: $900,000
Mortgage: $600,000
Mortgage rate: 5.00%
HELOC rate: 6.50%
Amortization: 25 years
Gross income: $200,000
Estimated marginal rate: 40%
Monthly surplus: $1,000
Accelerators: Off

What typically happens in year 1:

Your regular mortgage payments reduce principal.
Your HELOC limit increases by that same principal amount.
You borrow that amount (or part of it) and invest in a non registered account.
You pay HELOC interest monthly.
If interest is deductible based on use and tracing, you may receive a tax refund after filing.
You can choose to apply that refund to the mortgage to accelerate the next cycle.

This is exactly what the calculator is designed to help you compare: plain cycle vs accelerators vs conservative inputs.

Smith Manoeuvre FAQ

Is the Smith Manoeuvre legal in Canada?+

The Smith Manoeuvre itself is a legal strategy in Canada, built on the broader principle that interest deductibility is tied to the use of borrowed funds and proper tracing. The key is execution, documentation, and staying within CRA rules—so you must confirm your situation with a CPA.

Will the CRA audit the Smith Manoeuvre?+

Any deduction, including the Smith Manoeuvre, can be reviewed by the CRA. The practical issue is whether you can prove a clean paper trail showing borrowed HELOC funds moving from the readvanceable mortgage into an eligible investment account, without personal contamination.

Do I need a readvanceable mortgage for the Smith Manoeuvre?+

Yes, a readvanceable (re-advanceable) mortgage is typically required. You need an amortizing mortgage plus a HELOC that automatically re-advances as you pay down principal so you can re-borrow and invest in a way that may qualify for interest deductibility.

Can I use a TFSA or RRSP with the Smith Manoeuvre?+

Typically, borrowed funds used to invest in registered accounts like a TFSA or RRSP do not support the same interest deductibility mechanics. The Smith Manoeuvre is usually implemented using non-registered investing accounts instead.

What happens if I sell my house while doing the Smith Manoeuvre?+

A HELOC is secured to the property, so when you sell, it is typically repaid from the sale proceeds. Porting or re-structuring a Smith Manoeuvre setup to a new property can be possible, but it becomes a transaction planning problem with your lender and advisors.

Smith Manoeuvre vs Smith Maneuver – is there a difference?+

There is no difference in strategy—“Smith Manoeuvre” is the original Canadian spelling and branding, while “Smith Maneuver” is a common alternate spelling. This page and calculator use both terms so Canadians searching either version can find the same readvanceable mortgage and HELOC investing concept.

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Don’t just calculate it. Structure it.

Map out how the Smith Manoeuvre would actually run in your life.

The calculator can show the math. The outcome depends on execution: product setup, account separation, transfer discipline, and investment selection. If you want a second set of eyes on your mortgage structure and the practical workflow, we can map out how this would be set up on the lending side, and where your CPA and investment professional need to confirm details.