Its usually helpful to move your mortgage interest from debt that is not tax deductible to something that is tax deductible. If done properly you can not only benefit from today’s lower carrying costs, but also reduce your taxes. For high income earners this can cut your after-tax interest mortgage costs by more than half.
There’s a technique called “The Smith Maneuver” that cleverly exploits a set of income tax laws in Canada. Although your mortgage is usually not tax-deductible, anytime you are borrowing to invest, the interest on that loan is tax-deductible.
For existing homeowners, if you access your home equity to invest in another property, securities (stocks and bond) or invest in your own business – the interest on that portion of the loan becomes tax deductible. As you approach retirement ways to use this interest deduction and home equity in ways that allow you to withdraw funds from your RRSP tax free.
From CRA’s website –
There are two tests required by CRA to deduct mortgage from your taxes, which is why working with a professional is important to document and implement the strategy correctly.
Again, tax deductible interest applies if you have home equity, have investments, own rental properties, own a business, are retired or planning retirement, or plan on making any investments in the future.
Everyone’s situation is different, but I am happy to put together a plan to reduce your after-tax interest costs.