The Smith Maneuver is a powerful, legal tax strategy in Canada that allows homeowners to make their mortgage interest tax-deductible. By wisely leveraging the equity in your home, this method allows you to accelerate your mortgage repayment while simultaneously growing your investment portfolio.
Wise Equity is proudly Smith Maneuver certified, and we provide expert guidance throughout the process to help you fully capitalize on this transformative wealth-building strategy.
The Smith Maneuver allows you to tap into the equity in your home by re-borrowing the amount you’ve paid off on your mortgage to make new investments. By using these borrowed funds with the intent to generate income, the interest on the loan becomes tax-deductible.
This tax-deductible interest lowers your taxable income, resulting in a tax refund. You can then apply that refund toward your mortgage, which increases the equity available for further borrowing and investing. This creates a cycle where you reduce your mortgage faster and grow your investment portfolio at the same time.
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To fully harness its potential, various accelerators can be employed to optimize tax savings and investment growth. Each accelerator focuses on a unique method to enhance the effectiveness of the Smith Manoeuvre, leveraging different aspects of your financial situation.
Debt Swap
The Debt Swap strategy helps you turn your mortgage interest into a tax deduction. First, you use cash from selling off some of your assets to pay down part of your mortgage. Then, you borrow the same amount again to invest in new opportunities. By doing this, you switch from paying interest on non-deductible debt to deductible debt, which can boost your wealth and save you money on taxes.
Cash Flow Diversion
Cash Flow Diversion means using the money you usually save or invest to pay down your mortgage faster. After reducing your mortgage balance, you borrow the same amount again to put back into investments. This method helps you lower your mortgage quicker while keeping up with your investment contributions.
Cash Flow Damming
Rental Cash Damming works by using the rental income from investment properties to cover personal expenses, such as mortgage payments or living costs. Meanwhile, the landlord borrows an equivalent amount to finance expenses related to the rental property (maintenance, repairs, etc.). Since the loan is used for rental expenses, the interest on the borrowed funds becomes tax-deductible, reducing the overall tax burden and increasing cash flow.
DRiP (Dividend Reinvestment Plan)
The DRiP strategy involves taking dividends from your investments as cash instead of reinvesting them. You use this cash to make extra mortgage payments. Afterward, you borrow the same amount to buy back the same stock or invest in other opportunities.
Prime the Pump
Prime the Pump means tapping into extra funds by refinancing your mortgage or adjusting your current mortgage setup. After talking with a certified expert, you use these funds to make new investments. This strategy helps you get started with investing by using borrowed money.
Accelerated Mortgage Payoff
Speed up the repayment of your mortgage by using tax refunds and investment returns to make additional payments.
Enhanced Investment Growth
Utilize borrowed funds to invest in a diversified portfolio, potentially increasing your overall investment returns and building wealth more rapidly.
Increased Cash Flow
Optimize your cash flow by converting non-deductible debt into deductible debt, freeing up additional funds for savings or investments.
Increased Net Worth
By combining mortgage repayment with investment growth, you can enhance your overall net worth and achieve greater financial security in preparation for retirement.
Inflation Protection
Invest in assets that may appreciate over time, offering a potential hedge against inflation and preserving your purchasing power.
Unlock immediate access to our comprehensive e-book on ‘Creating Wealth With Your Equity’. This guide provides in-depth expert insights and detailed information that you won’t find elsewhere, helping you fully understand how The Smith Maneuver and Cash Damming strategies work.
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When planning for your child’s future, it’s important to weigh the benefits of investing in a Registered Education Savings Plan (RESP) against the potential returns of purchasing a rental property. With the RESP vs Rental Strategy, Wise Equity helps you evaluate both options. While RESPs offer tax-sheltered growth and government grants, investing in rental properties can provide ongoing income and asset appreciation. We’ll help you analyze your unique financial situation, long-term goals, and risk tolerance to determine which option is best for you and your family.
Rental properties provide multiple avenues for wealth accumulation. They appreciate in value over time, generate steady rental income, and can be leveraged to acquire additional properties, enhancing your investment potential.
Real estate is a tangible asset that typically increases in value over time, serving as a hedge against inflation. This helps ensure that your investment grows in line with or outpaces the rising cost of education.
Real estate investments offer several tax benefits, such as deductions for mortgage interest, property taxes, and depreciation. These deductions can lower your taxable income, allowing more funds to be reinvested into your child’s future.
Unlike RESP funds, which are limited to educational expenses, rental property income offers greater flexibility. You can use the returns for various financial needs, including funding education, starting a business, or other investments.
Rental properties can be passed down through generations, providing long-term financial security for your family and extending the benefits beyond just your children.
As a self-employed individual, optimizing your tax strategy is essential to minimizing costs and growing your wealth. One highly effective approach is the Self-Employed Income Tax Reduction Strategy, which allows you to use your business revenue to both pay down your mortgage and increase your investments.
Leverage Business Revenues
As a proprietor, you can use the revenue from your business to make additional mortgage payments. This helps reduce your non-deductible mortgage debt faster, freeing up more funds over time for other financial goals.
Maximize Surplus Income
After covering your business expenses, any surplus revenue can be strategically reinvested. By channeling these surplus funds into investment opportunities—such as stocks, bonds, or rental properties—you’re not only paying off your mortgage faster but also actively growing your investment portfolio.
Tax-Deductible Interest
When you re-borrow to invest, the interest on those loans becomes tax-deductible. This reduces your taxable income, meaning you can lower your tax bill while continuing to invest and build your wealth.
Accelerated Mortgage Payoff
As a proprietor, you can use the revenue from your business to make additional mortgage payments. This helps reduce your non-deductible mortgage debt faster, freeing up more funds over time for other financial goals.
Increased Investment Portfolio
After covering your business expenses, any surplus revenue can be strategically reinvested. By channeling these surplus funds into investment opportunities—such as stocks, bonds, or rental properties—you’re not only paying off your mortgage faster but also actively growing your investment portfolio.
Tax Savings
The strategy converts non-deductible personal mortgage debt into deductible investment debt, lowering your tax burden each year. The tax savings can then be reinvested, creating a cycle of wealth accumulation.
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