Smith Manoeuvre Calculator (Canada, 2026)

See what the Smith Manoeuvre does to your net worth over 5 to 40 years. You re-borrow each mortgage principal payment on a readvanceable line of credit, invest it, and deduct the interest at your 2026 marginal rate. Compare it with just paying the mortgage or investing without borrowing, and see the return you need to break even.

$
Your marginal rate is 31.5%. That is what each dollar of deductible interest saves.
Your mortgage
$
%
years
The line of credit and the investments
%
Prime is 4.45% as of 2026-09-02. That is the Bank of Canada policy rate of 2.25% plus 2.20%.
%
An assumption, not a promise
years
Refund, returns, payment frequency and re-borrowing
Each year's tax refund
Returns come as
%
Lenders cap how much of a home's value you can re-borrow. Enter what yours allows.
After 20 years vs the plain mortgage+$98,494Net worth of −$18,473 against −$116,967. That is a portfolio worth $514,932 after tax on the gain, less a $334,640 deductible line of credit and a $65,360 mortgage. The mortgage is not fully converted within 20 years. You need a return above 3.16% a year to come out ahead. Investing the same interest money without borrowing would leave −$66,458. So the borrowing itself is worth $47,985.
$0$282,722$565,44415101520
Mortgage (not deductible)Line of credit (deductible)Portfolio
Line-of-credit interest paid (deductible, line 22100)$133,406
Tax refunds on it (30.0% effective)$40,031
Portfolio before tax$565,444
Tax if sold (50% of the $230,804 gain is taxable)−$50,512
Net worth: Smith Manoeuvre−$18,473
Net worth: just pay the mortgage−$116,967
Net worth: invest the same cash, no borrowing−$66,458
Advantage if the portfolio ends 20% lower+$12,065
Year by year
YearMortgageLine of creditPortfolioInterestRefundvs mortgage only (before tax on the gain)
1$390,757$9,243$9,491$207$65+$106
2$380,966$19,034$20,110$673$212+$476
3$370,595$29,405$31,957$1,167$368+$1,165
4$359,615$40,385$45,137$1,691$527+$2,229
5$347,995$52,006$59,761$2,245$691+$3,732
6$335,696$64,304$75,954$2,832$865+$5,745
7$322,680$77,320$93,850$3,452$1,049+$8,348
8$308,906$91,094$113,594$4,109$1,244+$11,630
9$294,327$105,673$135,342$4,805$1,450+$15,684
10$278,899$121,101$159,263$5,541$1,669+$20,616
11$262,570$137,430$185,537$6,319$1,899+$26,540
12$245,289$154,711$214,359$7,144$2,144+$33,578
13$227,000$173,000$245,938$8,016$2,402+$41,868
14$207,645$192,355$280,500$8,939$2,676+$51,554
15$187,160$212,840$318,288$9,916$2,966+$62,798
16$165,481$234,519$359,561$10,950$3,272+$75,773
17$142,537$257,463$404,601$12,044$3,597+$90,668
18$118,256$281,745$453,708$13,202$3,940+$107,687
19$92,557$307,443$507,207$14,428$4,304+$127,053
20$65,360$334,640$565,444$15,725$4,688+$149,006
The risks are real. Leverage: the investments can fall while the $334,640 line of credit does not. A 20% drop at the end turns this plan into a $12,065 gain against the plain mortgage. Rates: the line of credit floats with prime. Every point on $334,640 is $3,346 a year of interest. Tracing: the CRA follows what each borrowed dollar was used for (Folio S3-F6-C1). Keep the investment line separate and never draw on it for anything personal. One mixed withdrawal taints the interest on the whole account pro rata. Investments must carry a reasonable expectation of income. Common shares and dividend funds qualify. A fund that never pays out may not. Anti-avoidance: in Lipson (2009 SCC 1) the Supreme Court applied the general anti-avoidance rule when the plan was layered with spousal attribution to move the deduction to the higher earner. The plain manoeuvre was respected in Singleton (2001 SCC 61).
Show the math

Each payment splits into interest and principal on the $2,167 monthly payment. The principal (100% of it) is re-borrowed on the line of credit and invested, so the line grows as the mortgage shrinks. Line-of-credit interest is paid from cash flow and deducted under ITA 20(1)(c) on line 22100. The refund is the income tax at $100,000 minus the tax with the year's interest deducted. It is applied against the mortgage, which frees more room to re-borrow. Growth compounds untaxed. If sold at the end, 50% of the gain is taxed at your rate. All three paths spend the same cash every period: the mortgage payment plus the line-of-credit interest. The "invest without borrowing" path invests that interest instead. The "just pay the mortgage" path keeps it. Net worth = portfolio after tax − line of credit − mortgage, less that extra cash. Break-even is the return at which the manoeuvre and the plain mortgage tie. Folio S3-F6-C1 ¶1.34 (cash damming) and ¶1.43 (mixed accounts) set the record-keeping rules.

How this calculator works

The guide, The Smith Manoeuvre: how mortgage interest becomes tax-deductible in Canada, explains the rules, the tracing test and the court cases. This page runs the numbers.

Each mortgage payment’s principal is re-borrowed on the linked line of credit and invested, so the deductible line grows as the non-deductible mortgage shrinks. Each year:

  1. Line-of-credit interest is paid from your cash flow and deducted on line 22100. The refund is worked out from the 2026 federal and provincial tables.
  2. The refund either prepays the mortgage, which frees more room to re-borrow, or is kept as cash.
  3. The investments grow at the return you assume. Growth is taxed only if sold at the end, with 50% of the gain included in income. If you choose eligible dividends instead, they are grossed up, credited and taxed each year, then reinvested.

All three paths spend the same cash, the mortgage payment plus the line-of-credit interest. “Just pay the mortgage” keeps that interest money. “Invest without borrowing” invests it. Net worth is the portfolio after tax, less the line of credit, less the mortgage, less that extra cash.

Worked example: $400,000 mortgage at 4.29%, $100,000 income in Ontario, 6% return, 20 years

After 20 yearsSmith ManoeuvreJust pay the mortgage
Mortgage (not deductible)$65,360$116,967
Line of credit (deductible)$334,640—
Portfolio, after tax if sold$514,932—
Interest paid on the line$133,406—
Tax refunds on that interest$40,031 (30.0%)—
Net worth−$18,473−$116,967

The manoeuvre is $98,494 ahead after 20 years, with the refunds prepaying the mortgage, which is down to $65,360 against $116,967 on the plain schedule. The break-even return is 3.16%. If the portfolio is 20% lower at the end, the advantage is $12,065.

A $12,000 interest deduction at $120,000 of income in Ontario saves $4,345 (36.2% effective), a little under the 43.41% marginal rate because the deduction crosses the $117,045 federal bracket edge.

Assumptions

  • The line-of-credit rate, the investment return and the mortgage rate stay constant for the whole horizon.
  • Line-of-credit interest is simple interest paid every period from cash flow, not added to the line.
  • The refund arrives at the end of the year the interest is paid. In practice it comes after filing the following spring.
  • Only growth or eligible dividends are modelled. Return-of-capital distributions are not.
  • The share of principal you can re-borrow depends on your lender’s readvanceable limit. Enter the share it allows.
  • Quebec’s limit on investment-expense deductions, deductible only against investment income with the excess carried forward, is flagged, not modelled.

How to set up the Smith Manoeuvre and keep the interest deductible

The tax result depends on paperwork. You need a separate line of credit, a separate investment account, and a paper trail from every borrowed dollar to an income-earning investment.

  1. At renewal or refinancingFCAC: home equity lines of credit ↗
  2. Before the first drawFolio S3-F6-C1, Interest Deductibility ↗
  3. After each mortgage payment
  4. All year
  5. With each tax returnLine 22100, carrying charges and interest ↗
  6. When the refund arrives
  7. Before adding any twistCRA: general anti-avoidance rule ↗
Common questions

Frequently asked questions

What is the Smith Manoeuvre?
A way to turn a non-deductible mortgage into deductible investment debt. With a readvanceable mortgage, each principal payment frees room on a linked line of credit. You re-borrow that room and invest it in income-producing assets. The interest is deductible under paragraph 20(1)(c) of the Income Tax Act because the borrowed money earns income. The refund can prepay the mortgage, which frees more room. Our guide, The Smith Manoeuvre: how mortgage interest becomes tax-deductible, covers the rules and the court cases.
Is mortgage interest ever deductible in Canada?
Not on your own home. Interest is deductible only when the borrowed money is used to earn income from a business or property (ITA 20(1)(c)). The Smith Manoeuvre does not make the original mortgage deductible. It replaces it, dollar by dollar, with a separate loan used for investing.
How much tax does the deduction save?
The interest reduces taxable income, so the saving is roughly your marginal rate times the interest. At $120,000 in Ontario, $12,000 of line-of-credit interest saves about $4,345 in 2026.
What return do I need for it to work?
More than the after-tax cost of the line of credit, adjusted for the tax you will eventually pay on the investments. At a 5% line rate and a 40% marginal rate, the borrowing costs about 3% after tax, and only half of a capital gain is taxable. So the break-even return is usually between 3% and 4.5%.
Can I invest the borrowed money in my TFSA or RRSP?
You can, but the interest is not deductible. Section 18(11) denies interest on money borrowed to contribute to an RRSP. TFSA and FHSA income is exempt, so borrowing to earn it fails the income-earning test. The manoeuvre only works in a non-registered account.
What is direct-use tracing and why does it matter?
The CRA looks at what each borrowed dollar was actually used for, not what the loan is called. Draw on the investment line for a car or a vacation and that part of the interest stops being deductible. In a mixed account, every repayment reduces the eligible and ineligible parts pro rata. Keep the investment line for nothing else.
Did the courts approve the Smith Manoeuvre?
The Supreme Court accepted a plain re-borrowing in Singleton (2001), where the new debt was traced to an investment use. In Lipson (2009) it applied the general anti-avoidance rule to a version that also used the spousal attribution rules to shift the deduction to the higher-income spouse. Layering other rules on top is where the risk lies.
What are the main risks?
The investments can fall while the debt stays. The line of credit floats with prime, and every extra point on a $300,000 line is $3,000 a year, paid from your pocket every month. Deductibility can shrink if a fund pays no income, you draw on the line for personal use, or you spend a return-of-capital distribution. Quebec also limits investment-expense deductions to investment income in the year.

Tax-saving strategies that use this calculator

Sources

Sources

Every figure on this page comes from one of these primary sources. Data last verified .

  1. CRA T4127 Payroll Deductions Formulas, 123rd Edition, effective July 1, 2026 (Rev. 26/06)
  2. CRA – CPP contribution rates, maximums and exemptions
  3. CRA – Second additional CPP (CPP2) contribution rates and maximums
  4. ESDC – EI maternity and parental benefits: how much you could receive
  5. CRA – EI premium rates and maximums
  6. CRA – Indexation adjustment for personal income tax and benefit amounts
  7. Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), s. 150(1)(d) and s. 156.1(4): filing deadlines and balance-due day
  8. Canada Employment Insurance Commission – Canada Employment Insurance Commission confirms 2027 Employment Insurance premium rate (September 14, 2026)
  9. CRA, Canadian income tax rates for individuals, current and previous years
  10. Government of Alberta, Personal income tax
  11. Government of British Columbia, Personal income tax rates (2026)
  12. Government of British Columbia, B.C. tax reduction credit
  13. Manitoba Finance, Personal income taxes
  14. CRA, T4032 Payroll Deductions Tables, New Brunswick (January 2026)
  15. Government of New Brunswick, Personal income tax
  16. Newfoundland and Labrador Department of Finance, Personal income tax
  17. Newfoundland and Labrador, Bill 16 (2026), An Act to Amend the Income Tax Act, 2000
  18. Nova Scotia Finance and Treasury Board, Personal income tax indexation update for 2026
  19. Nova Scotia Income Tax Act (consolidated), s. 35 low income tax reduction
  20. CRA, T4032 Payroll Deductions Tables, Northwest Territories (January 2026)
  21. Government of Nunavut, January 2026 Tax Rate Sheet
  22. CRA, T4032 Payroll Deductions Tables, Nunavut (January 2026)
  23. Ontario Ministry of Finance, Personal income tax rates and credits (2026 dataset)
  24. Prince Edward Island Income Tax Act (consolidated 2026)
  25. Revenu Québec, TP-1015.F-V (2026-01) Formulas to Calculate Source Deductions and Contributions
  26. Retraite Québec, Québec Pension Plan Figures 2026
  27. Gouvernement du Québec (Québec.ca), Taux de cotisations au Régime québécois d'assurance parentale (RQAP) — page updated 19 March 2026
  28. Ministère des Finances du Québec, Parameters of the Personal Income Tax System for 2026 (November 2025)
  29. Government of Saskatchewan, Personal income tax
  30. CRA, T4032 Payroll Deductions Tables, Yukon (January 2026)
  31. Income Tax Act s. 82(1)(b) (Justice Laws)
  32. CRA – Federal Worksheet 5000-D1 (2025), line 40425
  33. Prime Minister of Canada – news release 2025-03-21 'Prime Minister Carney cancels proposed capital gains tax increase'
  34. CRA – Income Tax Folio S1-F3-C2, Principal Residence (ITA para. 40(2)(b))
  35. CRA – Worksheet AB428 (form 5009-D, 2025 tax year, edition '(25)'), line 61520
  36. CRA – Worksheet BC428 (form 5010-D, 2025 tax year, edition '(25)'), line 61520
  37. CRA – Worksheet MB428 (form 5007-D, 2025 tax year, edition '(25)'), line 61520
  38. CRA – Worksheet NB428 (form 5004-D, 2025 tax year, edition '(25)'), line 61520
  39. CRA – Worksheet NL428 (form 5001-D, 2025 tax year, edition '(25)'), line 61520
  40. CRA – Worksheet NS428 (form 5003-D, 2025 tax year, edition '(25)'), line 61520
  41. CRA – Worksheet NT428 (form 5012-D, 2025 tax year, edition '(25)'), line 61520
  42. CRA – Worksheet NU428 (form 5014-D, 2025 tax year, edition '(25)'), line 61520
  43. CRA – Worksheet ON428 (form 5006-D, 2025 tax year, edition '(25)'), line 61520
  44. CRA – Worksheet PE428 (form 5002-D, 2025 tax year, edition '(25)'), line 61520
  45. Taxation Act (CQLR c. I-3), s. 767 (Légis Québec)
  46. CRA – Worksheet SK428 (form 5008-D, 2025 tax year, edition '(25)'), line 61520
  47. CRA – Worksheet YT428 (form 5011-D, 2025 tax year, edition '(25)'), line 61520
  48. CRA, Income Tax Folio S3-F6-C1, Interest Deductibility
  49. Income Tax Act s. 20(1)(c), interest on borrowed money used to earn income (Justice Laws)
  50. Income Tax Act s. 18(11), no deduction for interest on money borrowed for an RRSP, TFSA or FHSA (Justice Laws)
  51. Income Tax Act s. 245, general anti-avoidance rule (Justice Laws)
  52. CRA, General anti-avoidance rule
  53. CRA, Line 22100, Carrying charges, interest expenses and other expenses
  54. Singleton v. Canada, 2001 SCC 61
  55. Lipson v. Canada, 2009 SCC 1
  56. Bank of Canada, policy rate announcement of 2 September 2026 (policy rate 2.25%, and chartered-bank prime is derived as the policy rate plus 2.20%)
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Data verified for tax year 2026: Updated By Nishant Malik, founder of GlassLayer