Smith Manoeuvre Calculator (Canada, 2026)

See what the Smith Manoeuvre does to your net worth over 5 to 40 years: re-borrowing each mortgage principal payment on a readvanceable line of credit, investing it, and deducting 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.

$
Marginal rate 31.5%: what each dollar of deductible interest saves
Your mortgage
$
%
years
The line of credit and the investments
%
Prime is 4.45%: the Bank of Canada policy rate of 2.25% plus 2.20% (2026-09-02)
%
An assumption, not a promise
years
Refund, returns, payment frequency, how much to re-borrow
Each year's tax refund
Returns come as
%
Lenders cap the re-advanceable part of a home's value; enter what yours allows
After 20 years, compared with just paying the mortgage+$98,494Net worth of −$18,473 against −$116,967: 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
If the portfolio is 20% lower at the end: advantage+$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, so common shares and dividend funds qualify while a fund that never distributes 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 exactly 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 income tax at $100,000 minus tax with the year's interest deducted, 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, which the "invest without borrowing" path invests instead and the "just pay the mortgage" path keeps. 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 to set up the Smith Manoeuvre and keep the interest deductible

The tax result depends entirely on paperwork: 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. Interest on the line of credit is deductible under paragraph 20(1)(c) of the Income Tax Act because the borrowed money earns income, and the refund can prepay the mortgage, which frees more room. The strategy, the tracing rules and the court cases are covered in our guide, The Smith Manoeuvre: how mortgage interest becomes tax-deductible.
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 whose use is 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. The calculator runs the deduction through the federal and provincial brackets rather than a flat rate, which matters when the deduction crosses a bracket edge.
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%. The calculator reports the exact figure for your inputs.
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, and 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 principal repayment reduces the eligible and ineligible parts pro rata. Keep the investment line separate and use it for nothing else.
Did the courts approve the Smith Manoeuvre?
The Supreme Court respected a plain re-borrowing in Singleton (2001), where refinancing so that the new debt was traced to an investment use was upheld. 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. The simple manoeuvre is accepted; layering other rules on top is where the risk lies.
What are the main risks?
Leverage: the investments can fall while the debt stays. Rates: the line of credit floats with prime, and every extra point on a $300,000 line is $3,000 a year. Cash flow: the interest is paid from your pocket every month. Tax: a fund that pays no income, a personal draw on the line, or a spent return-of-capital distribution can all reduce deductibility. Quebec also limits investment-expense deductions to investment income in the year.
Full guide: how it works, a worked example, every rule and every source Read the guide →

What changed in 2025 and 2026

Sources

Sources

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

  1. CRA T4127 Payroll Deductions Formulas, 122nd Edition, effective January 1, 2026 (Rev. 26/05)
  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. CRA, Canadian income tax rates for individuals, current and previous years
  8. Government of Alberta, Personal income tax
  9. Government of British Columbia, Personal income tax rates (2026)
  10. Government of British Columbia, B.C. tax reduction credit
  11. CRA, T4127 Payroll Deductions Formulas, 123rd edition (July 1, 2026)
  12. Manitoba Finance, Personal income taxes
  13. CRA, T4032 Payroll Deductions Tables, New Brunswick (January 2026)
  14. Government of New Brunswick, Personal income tax
  15. Newfoundland and Labrador Department of Finance, Personal income tax
  16. Newfoundland and Labrador, Bill 16 (2026), An Act to Amend the Income Tax Act, 2000
  17. Nova Scotia Finance and Treasury Board, Personal income tax indexation update for 2026
  18. Nova Scotia Income Tax Act (consolidated), s. 35 low income tax reduction
  19. CRA, T4032 Payroll Deductions Tables, Northwest Territories (January 2026)
  20. Government of Nunavut, January 2026 Tax Rate Sheet
  21. CRA, T4032 Payroll Deductions Tables, Nunavut (January 2026)
  22. Ontario Ministry of Finance, Personal income tax rates and credits (2026 dataset)
  23. Prince Edward Island Income Tax Act (consolidated 2026)
  24. Revenu Québec, TP-1015.F-V (2026-01) Formulas to Calculate Source Deductions and Contributions
  25. Retraite Québec, Québec Pension Plan Figures 2026
  26. Gouvernement du Québec (Québec.ca), Taux de cotisations au Régime québécois d'assurance parentale (RQAP) — page updated 19 March 2026
  27. Ministère des Finances du Québec, Parameters of the Personal Income Tax System for 2026 (November 2025)
  28. Government of Saskatchewan, Personal income tax
  29. CRA, T4032 Payroll Deductions Tables, Yukon (January 2026)
  30. Income Tax Act s. 82(1)(b) (Justice Laws)
  31. CRA – Federal Worksheet 5000-D1 (2025), line 40425
  32. Prime Minister of Canada – news release 2025-03-21 'Prime Minister Carney cancels proposed capital gains tax increase'
  33. CRA – Income Tax Folio S1-F3-C2, Principal Residence (ITA para. 40(2)(b))
  34. CRA – Worksheet AB428 (form 5009-D, 2025 tax year, edition '(25)'), line 61520
  35. CRA – Worksheet BC428 (form 5010-D, 2025 tax year, edition '(25)'), line 61520
  36. CRA – Worksheet MB428 (form 5007-D, 2025 tax year, edition '(25)'), line 61520
  37. CRA – Worksheet NB428 (form 5004-D, 2025 tax year, edition '(25)'), line 61520
  38. CRA – Worksheet NL428 (form 5001-D, 2025 tax year, edition '(25)'), line 61520
  39. CRA – Worksheet NS428 (form 5003-D, 2025 tax year, edition '(25)'), line 61520
  40. CRA – Worksheet NT428 (form 5012-D, 2025 tax year, edition '(25)'), line 61520
  41. CRA – Worksheet NU428 (form 5014-D, 2025 tax year, edition '(25)'), line 61520
  42. CRA – Worksheet ON428 (form 5006-D, 2025 tax year, edition '(25)'), line 61520
  43. CRA – Worksheet PE428 (form 5002-D, 2025 tax year, edition '(25)'), line 61520
  44. Taxation Act (CQLR c. I-3), s. 767 (Légis Québec)
  45. CRA – Worksheet SK428 (form 5008-D, 2025 tax year, edition '(25)'), line 61520
  46. CRA – Worksheet YT428 (form 5011-D, 2025 tax year, edition '(25)'), line 61520
  47. CRA, Income Tax Folio S3-F6-C1, Interest Deductibility
  48. Income Tax Act s. 20(1)(c), interest on borrowed money used to earn income (Justice Laws)
  49. Income Tax Act s. 18(11), no deduction for interest on money borrowed for an RRSP, TFSA or FHSA (Justice Laws)
  50. Income Tax Act s. 245, general anti-avoidance rule (Justice Laws)
  51. CRA, General anti-avoidance rule
  52. CRA, Line 22100, Carrying charges, interest expenses and other expenses
  53. Singleton v. Canada, 2001 SCC 61
  54. Lipson v. Canada, 2009 SCC 1
  55. Bank of Canada, policy rate announcement of 2 September 2026 (policy rate 2.25%; 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