About 20 years ago in British Columbia a financial planner by the name of Smith decided he could help Canadians acquire real wealth if he could show them how to write off their home mortgages on their tax returns.

He was a professional in the investment industry and knew how to exercise some options in personal finance that would allow the average Canadian to profit by claiming their mortgage expenses to reduce the tax they would otherwise have to pay.

He knew that the biggest financial problem average Canadians face is paying down their mortgage, and he wanted to help.

Fraser Smith has been described as a cross between a big burly biker and Santa Claus. Following 20 years of helping his clients in BC to acquire real wealth through crafty tax planning and debt reduction, he decided to retire from the business and write the book. Now, the secrets of the Smith Manoeuvre are available to all Canadians in a compact and very readable manual for wealth creation, simply titled, "The Smith Manoeuvre."

The process involves using the equity you have in your home to purchase investments. The Income Tax Act is very clear, if the loan is for consumption the related interest expense is not deductible, if the loan is for investment or for business purposes then the interest is deductible against other sources of income and can reduce the tax you would otherwise have to pay the government. The homeowner simply arranges a line of credit which is used to purchase investments, and the interest is tax deductible.

With the help of a professional financial planner it is possible to buy investments which pay a regular monthly amount that will pay the monthly interest costs for the investment loan and an additional amount to pay down your mortgage.  The combination of your regular mortgage payment and this additional payment accelerates paying off the mortgage.  At the end of the year when you file your tax return you will have an interest expense information slip from the bank, which you can claim on your return. The effect of this is that you will get a refund cheque from the government, for the interest expense on the investment loan.  When the mortgage is completed you continue to pay down the investment loan until the underlying asset is free of debt.

Not everyone is comfortable with the risks of leverage.  For example, if the fund reduced the payout for any reason, you could need to realign your cash flow to pay more of the costs associated with the plan; if this happened at an inappropriate time the financial strain could be uncomfortable.  This could mean out of pocket costs or a change in the results or time frame of the plan.  For clients who are comfortable with the risks of leverage, the benefits can be significant.

The homeowner enjoys another real savings when they notice that the mortgage is retired years before it was scheduled to be. On a $100,000 mortgage at 5%, this could mean 25000 to $50000 in interest savings.

So let's recap; the homeowner saves on their tax return, gets a refund cheque in April, reduces the mortgage they own and saves because the house is paid for earlier than scheduled. Did I mention that of course the home is free and clear and they have an investment account of thousands of dollars they otherwise wouldn't have, all without taking a dollar out of their pockets?