Supreme Court `Smith Manoeuvre` ruling

[wealthyboomer]

Beware of mortgage tax deduction claims

Earlier this month, the Supreme Court of Canada issued a decisive ruling that clarifies once and for all that the interest paid on a mortgage taken out to purchase a principal residence cannot be tax deductible under any circumstances (unless part of the house is used for business purposes.)
http://www.aaron.ca/columns/2009-01-31.htm

 

[SusanPenner]

Just like to point out that the "Smith manoeuvre" doesn`t advocate that a person can deduct the interest on their principal residence. It is clear that that case was in violation....very creative though!

The Smith manoeuvre wants you to take out a matrix mortgage (credit line attached to the principal residence) and use the credit line for investment purposes. The interest from the CREDIT LINE is a tax deduction when used for investment purposes. NOTE: Make sure the credit line is ONLY used for investment purposes so that the audit trail is clean. The book then goes on to say to take the tax refund and put it down on the principal residence creating more room on the line of credit. In this way you can make the equity in your principal residence work for you.

Regards,

Susan

 

[kopilas]

It all comes down to the intent or purpose of what you are doing!
Were the Lipsons looking to make money or were they looking to avoid paying taxes?

 

[fyim]

It`s funny how the same information can be interpreted in different ways. I most recently worked for a financial institution dealing with taxation and estate planning and have read the actual case and final ruling. The issue in the Lipson case was that GAAR was found to apply to the transactions dealing with the misuse of the attribution rules between spouses. The case also made it clear that a plain-vanilla swap in the Singleton case was acceptable. Hence the Smith maneuver is an acceptable way of converting the interest on a mortgage from non-deductible to deductible.

I`ve included a link to a few other articles that support this:

http://www.advisor.ca/advisors/news/indust...08_145415_34700

http://www.nationalpost.com/news/canada/bu...html?id=1187174

Regards,

Frank