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HELOC leverage (Smith Manoeuvre)

What this is

Should you borrow against your home to invest?

In Canada, interest on money borrowed to earn investment income is tax-deductible (the 'Smith Manoeuvre'). If the after-tax investment return beats the after-tax HELOC interest, you make money. If not, you lose.

  • ·After-tax HELOC cost = HELOC rate × (1 − marginal tax rate). At 7.5% × (1 − 0.43) = 4.28%.
  • ·After-tax investment return = expected return × (1 − dividend/cap-gains tax drag). Roughly 5-6% net for a balanced portfolio.
  • ·Profitable margin is usually thin. Add volatility, a 30% market drop with leveraged money is brutal.

After-tax HELOC cost

$4,275 / yr

After-tax return

$5,950 / yr

Net annual yield

0.02%

Net wealth @ horizon

$73,841

✓ Profitable on paper

Educational. Not financial advice. Leveraged investing magnifies BOTH gains AND losses. Smith Manoeuvre setups need proper CRA documentation (Form T2200 + trace the loan to investment account).

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Disclaimer

Educational, not financial advice. Output is generated by an AI assistant using simplified assumptions. Tax rates, contribution limits, and benefit amounts change annually; confirm with a CFP, CPA, or the relevant Canadian regulator (CRA, FSRA, OSC, IIROC) before acting.