r/smithmanoeuvre

I recently learned about smith maneuver and quite interested in utilizing it. We bought a house and have a TD flexline product that is used to pay the mortgage. We have 90k in there that we can withdraw and start investing right away and then I am hoping to withdraw monthly to invest. My spouse has 100k rrsp room and I have a 90k tfsa room. Is it better to invest the lumpsump amount in rrsp, reinvest the tax returns and then invest monthly into non-registered account or go directly to investing in the non registered account? Idea is to do this for 15 years, pay off mortgage and retire. I am in 43-44% tax bracket. Spouse in 36-38%.

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?

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!

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?

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!

In the process of buying a new house. Going to go with a bank that has the HELOC function that works with SM.

I've created a few tables to help me understand if SM would be feasible for me. The tables are each 300+ rows, but I won't bore you with that much detail. So I'll only include the first 12 rows from each table.

Looking to get some feedback to tell me if I'm on the right or wrong path.

My assumptions:

Mortgage/yr = 4.69%

Mortgage/month = 0.39%

HELOC/yr = 4.95%

HELOC/month = 0.41%

ROI/yr = 6.00%

ROI/month = 0.50%

Marginal tax rate = 43.00%

Half marg tax rate = 21.50%

Mortgage payment = $1,481.29

First, this is how I understand the function to work:

https://preview.redd.it/ahppzwme5kzg1.png?width=1023&format=png&auto=webp&s=411f8bb30ad6c9ac985d987b9b21ffcc07fbe206

Now, here are all my tables, I split up my SM transfer into two tables because I'll be doing an initial withdrawal from the HELOC for around $150K. I want to keep track of the interest separately for the initial pull and the on going monthly transfer.

My house, mortgage, & equity:

Period	Date	Home value	Beginning Mortgage Balance	Mortgage payment	Mortgage interest	Mortgage principle	Extra payments	Ending Mortgage balance
1	1/1/2026	$600,000	-$263,000.00	$1,481.29	-$1,027.89	$453.40	$0.00	-$262,546.60
2	2/1/2026	$600,000	-$262,546.60	$1,481.29	-$1,026.12	$455.17	$0.00	-$262,091.43
3	3/1/2026	$600,000	-$262,091.43	$1,481.29	-$1,024.34	$456.95	$0.00	-$261,634.48
4	4/1/2026	$600,000	-$261,634.48	$1,481.29	-$1,022.55	$458.74	$0.00	-$261,175.74
5	5/1/2026	$600,000	-$261,175.74	$1,481.29	-$1,020.76	$460.53	$0.00	-$260,715.21
6	6/1/2026	$600,000	-$260,715.21	$1,481.29	-$1,018.96	$462.33	$0.00	-$260,252.88
7	7/1/2026	$600,000	-$260,252.88	$1,481.29	-$1,017.16	$464.13	$0.00	-$259,788.75
8	8/1/2026	$600,000	-$259,788.75	$1,481.29	-$1,015.34	$465.95	$0.00	-$259,322.80
9	9/1/2026	$600,000	-$259,322.80	$1,481.29	-$1,013.52	$467.77	$0.00	-$258,855.03
10	10/1/2026	$600,000	-$258,855.03	$1,481.29	-$1,011.69	$469.60	$0.00	-$258,385.43
11	11/1/2026	$600,000	-$258,385.43	$1,481.29	-$1,009.86	$471.43	$0.00	-$257,914.00
12	12/1/2026	$600,000	-$25,7914.00	$1,481.29	-$1,008.01	$473.28	$0.00	-$257,440.72

Next is my monthly transfer:

Date	Beg. HELOC Balance	Interest	Transfer	HELOC Payment	End. HELOC Balance
1/1/2026	$0.00	$0.00	-$362.72	$0.00	-$362.72
2/1/2026	-$362.72	-$1.50	-$364.14	$364.14	-$364.22
3/1/2026	-$364.22	-$1.50	-$365.56	$365.56	-$365.72
4/1/2026	-$365.72	-$1.51	-$366.99	$366.99	-$367.23
5/1/2026	-$367.23	-$1.51	-$368.42	$368.42	-$368.74
6/1/2026	-$368.74	-$1.52	-$369.86	$369.86	-$370.26
7/1/2026	-$370.26	-$1.53	-$371.30	$371.30	-$371.79
8/1/2026	-$371.79	-$1.53	-$372.76	$372.76	-$373.32
9/1/2026	-$373.32	-$1.54	-$374.22	$374.22	-$374.86
10/1/2026	-$374.86	-$1.55	-$375.68	$375.68	-$376.41
11/1/2026	-$376.41	-$1.55	-$377.14	$377.14	-$377.96
12/1/2026	-$377.96	-$1.56	-$378.62	$378.62	-$379.52

Next is my lump sum table, I plan on pulling out ~150K when I start SM:

Date	Beg. HELOC Balance	Interest	Transfer	HELOC Payment	End. HELOC Balance
1/1/2026	$0.00	$0.00	-$151,366.92	$0.00	-$151,366.92
2/1/2026	-$151,366.92	-$624.39	-$624.39	$624.39	-$151,991.31
3/1/2026	-$151,991.31	-$626.96	-$626.96	$626.96	-$152,618.27
4/1/2026	-$152,618.27	-$629.55	-$629.55	$629.55	-$153,247.82
5/1/2026	-$153,247.82	-$632.15	-$632.15	$632.15	-$153,879.97
6/1/2026	-$153,879.97	-$634.75	-$634.75	$634.75	-$154,514.72
7/1/2026	-$154,514.72	-$637.37	-$637.37	$637.37	-$155,152.10
8/1/2026	-$155,152.10	-$640.00	-$640.00	$640.00	-$155,792.10
9/1/2026	-$155,792.10	-$642.64	-$642.64	$642.64	-$156,434.74
10/1/2026	-$156,434.74	-$645.29	-$645.29	$645.29	-$157,080.04
11/1/2026	-$157,080.04	-$647.96	-$647.96	$647.96	-$157,727.99
12/1/2026	-$157,727.99	-$650.63	-$650.63	$650.63	-$158,378.62

Last is my investment account:

Date	Beg. Investment Balance	Transfer	Extra Payments	Investment Return	Ending Investment Balance
1/1/2026	$0	$151,729.64	$0.00	$0.00	$151,729.64
2/1/2026	$151,729.64	$362.64	$0.00	$758.65	$152,850.93
3/1/2026	$152,850.93	$364.06	$0.00	$764.25	$153,979.24
4/1/2026	$153,979.24	$365.48	$0.00	$769.90	$155,114.62
5/1/2026	$155,114.62	$366.91	$0.00	$775.57	$156,257.10
6/1/2026	$156,257.10	$368.34	$0.00	$781.29	$157,406.73
7/1/2026	$157,406.73	$369.78	$0.00	$787.03	$158,563.54
8/1/2026	$158,563.54	$371.23	$0.00	$792.82	$159,727.58
9/1/2026	$159,727.58	$372.68	$0.00	$798.64	$160,898.90
10/1/2026	$160,898.90	$374.13	$0.00	$804.49	$162,077.53
11/1/2026	$162,077.53	$375.59	$0.00	$810.39	$163,263.50
12/1/2026	$163,263.50	$377.06	$0.00	$816.32	$164,456.89

I'll be capitalizing the interest on the HELOC to reduce my tax burden then using the tax refund to pay down the mortgage.

Any feedback?

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

Long time lurker on this sub. Have been contemplating Smith Manoeuvre for a while but haven’t been able to proceed due to a lack of understanding the strategy previously. Have been educating myself and was feeling pretty confident going into a renewal this year. UNTIL I learnt that it’s also possible to execute the strategy by using funds from a locked-in mortgage segment. The locked in rates are obviously better than Heloc rates, so why not? Reaching out to members of this group to ask if anyone does it with a locked in segment. Are there any implications of using a locked in segment (other than the fact that there may be a penalty to break the mortgage if I need the funds - which I wont), but anything else? What am I missing?