Smith Manoeuvre calculator

What is the Smith Manoeuvre?

The Smith Manoeuvre, or Smith Maneuver in the American spelling, is a way to borrow to invest in Canada using your home, and the best-known form of HELOC investing in Canada. It relies on a readvanceable mortgage: a mortgage and a home equity line of credit (HELOC) registered together, where every dollar of principal you repay becomes a dollar you can borrow again on the line.

You borrow that newly available credit and invest it. Interest on a mortgage for your own home is never deductible in Canada. Interest on money borrowed to buy qualifying income-producing investments may be, so over time some of your debt shifts from the non-deductible kind to the potentially deductible kind. That is why it is often described as a way to convert your mortgage to tax-deductible debt.

Be clear about what it is not. The debt does not disappear. When the mortgage is paid off you still owe the HELOC, usually close to what you originally owed on the mortgage. What you hold against it is a portfolio of investments that may be worth more or less than that debt. It is a leveraged mortgage investment strategy used across Canada, with investment, interest-rate, tax and behavioural risks.

How the Smith Manoeuvre works, step by step

1. Make your normal mortgage payment. Nothing changes about what you pay the lender.
2. Part of it repays principal. Early on, most of a payment is interest; the principal share grows every year.
3. That principal becomes HELOC room. In a readvanceable mortgage the line’s available credit rises by the principal repaid, once the mortgage is at or below 65% of the home’s value at a bank.
4. Borrow the new room. Draw it from a HELOC sub-account used for nothing else.
5. Invest it in qualifying investments. In a non-registered account, with a reasonable expectation of income such as dividends.
6. Track the investment borrowing separately. Keep statements and a record of each draw and what it bought.
7. Deduct the eligible HELOC interest. As a carrying charge on your return, line 22100, if your accountant confirms it qualifies.
8. Optionally, put the tax savings on the mortgage. As a prepayment, within your privileges, which frees more room to borrow.
9. Repeat. Each payment, until the mortgage is gone and the line is at its limit.

The exact setup varies by lender, mortgage product, tax situation and investment plan. Some lenders readvance automatically; others need you to request the increase.

Worked example: a $700,000 home with $500,000 owing

The calculator’s defaults: a $700,000 Nova Scotia home, a $500,000 mortgage at 4.45% with 25 years left, monthly payments of $2,753, a HELOC at 5.45%, a 6% return, and a 38% marginal rate (Nova Scotia, $100,000 taxable income, 2026). HELOC interest is paid from cash flow and each year’s tax savings go on the mortgage. This is an illustration, not a forecast.

The first years are a wait. The mortgage is 71.4% of the home’s value. At a bank, the $45,000 above 65% ($455,000) has to be paid off before anything readvances, which on these numbers takes until year 4. Year 1 repays $11,220 of principal and none of it can be borrowed back. At a lender outside OSFI’s rule, the same year would have produced $11,326 to invest.

By year 20 the line carries $369,432, the portfolio is worth $563,998, and the interest that year is $18,902, of which roughly $7,183 might come back as tax savings. Prepaying those savings clears the mortgage after about 22.3 years instead of 25, but the $455,000 line is still owed at the end.

Against a regular mortgage on the same budget, the example ends $156,354 ahead at 6%. At 0% it ends $131,855 behind it. The break-even is about 3.3%, close to the HELOC rate after tax: 5.45% × (1 − 0.38) ≈ 3.38%. That one comparison is the whole strategy: it pays only when your investments beat the after-tax cost of the borrowing, every year you hold them.

Readvanceable mortgages in Canada: the product the strategy needs

A conventional mortgage only goes down: principal you repay is gone unless you refinance. A readvanceable mortgage, also called a combined loan plan, puts several pieces under one collateral charge registered for up to 80% of the home’s value:

OSFI’s rule on lending above 65%

On June 30, 2022 the Office of the Superintendent of Financial Institutions told federally regulated lenders that, in a combined loan plan, any lending above 65% of value should be both amortizing and non-readvanceable: principal paid on that slice lowers the overall limit until it reaches 65%. In practice, if you owe more than 65% of your home’s value at a bank, the Smith Manoeuvre does not start until you have paid down to that line. Provincially regulated lenders, such as Nova Scotia credit unions, are not bound by OSFI’s guideline and set their own policies.

Which lenders offer them

Most of Canada’s large banks sell a readvanceable plan under their own brand, as do some credit unions and a few lenders available through mortgage brokers. Many broker-channel lenders offer mortgages only, with no line attached. No lender sells a product as “for the Smith Manoeuvre”; what matters is the structure. When comparing, ask:

• Can I open a separate HELOC sub-account just for investment borrowing?
• Does the limit readvance automatically with each payment, or only on request?
• What spread over prime does the line carry, and can it change?
• How high is the collateral charge registered, and what does it cost to move it to another lender at renewal?
• What are the prepayment privileges on the mortgage component, for putting tax savings on it?
• Can the lender reduce or freeze the line, and under what conditions?

Moving mid-term usually means a prepayment penalty on your current mortgage. What breaking a mortgage costs → At renewal there is normally no penalty, which makes it the natural time to restructure. More on HELOCs and home equity →

Is Smith Manoeuvre interest tax-deductible in Canada?

It can be. Paragraph 20(1)(c) of the Income Tax Act allows a deduction for interest on borrowed money used to earn income from a business or property. The CRA’s Income Tax Folio S3-F6-C1, Interest Deductibility, updated August 8, 2024, sets out how it reads that rule. The principles that matter here:

• The use of the money decides it. The interest must be paid under a legal obligation, be reasonable, and be on money used to earn income. What the loan is secured on, your house, does not matter; what the borrowed money bought does.
• It is the current use that counts. If you sell the investments and spend the proceeds, the link to an income-earning use can break and the interest on that part stops being deductible.
• You must be able to trace it. The CRA puts the onus on the taxpayer to link each borrowed dollar to an eligible use. A sub-account used only for investing, and draws that go straight to the investment account, make that simple.
• Mixing causes problems. When one line holds both personal and investment borrowing, repayments are split across both, and the CRA’s flexible tracing does not apply. Keep them apart.
• Income must be expected. The CRA generally accepts interest on money borrowed to buy common shares because dividends can reasonably be expected; its line 22100 guidance says that if an investment can only ever produce capital gains, the interest cannot be claimed.
• Registered accounts never qualify. Under subsection 18(11), interest on money borrowed for an RRSP, TFSA, FHSA, RESP or RDSP is not deductible.
• Capitalized interest. Interest on a second borrowing used to pay deductible interest is deductible too, under the folio’s compound-interest rules, but only when actually paid. Capitalizing grows the debt faster.

Nothing about a HELOC makes interest deductible automatically. The deduction is claimed on line 22100, carrying charges and interest expenses, and it is your claim to support if the CRA asks.

The risks, honestly

The strategy can work over long periods with discipline. These are the ways it goes wrong. The first one matters most: an investment loss does not reduce the HELOC. If the portfolio falls 30%, you still owe every dollar you borrowed, and pay interest on it.

Who does what

Mortgage qualification is subject to lender approval. Refinancing into a readvanceable mortgage → How much equity a refinance releases → Self-employed borrowers → Mortgage glossary →

How the calculator works

Written by Riley Oickle

Associate Mortgage Broker, Nova Scotia licence 2025-3001134, with Indi, The Independent Mortgage Company Ltd. Every figure on this page links to the government or regulator page it came from.

Last reviewed 2026-10-03 · About Riley · Verify the licence