1. Is this legal?
Yes, it is legal. The wealthy have been
using these strategies for years with
the help of lawyers and accountants.
Canada Revenue Agency has agreed with
this strategy. See Canada Revenue Agency
forms and publications, Interest Deductibility
and Related Issues NO.: IT-533
section 31 and examples #8 and #9.
It is extremely important to work with
qualified experienced professionals
who fully understand the strategy and
who will ensure the proper set up and
recording for tax deductibility.
2. Why haven't I heard about this
strategy before?
With the publication of "The
Smith Manoeuvre" by Fraser Smith,
a retired financial advisor, the strategy
is now being brought to the public through
a few financial planning firms. Bick
Financial Security Corporation was an
early adaptor of the concept since the
book's release and is a leader in implementing
the concepts.
Also, prior to 2004, the banking products
to facilitate the required mortgage
arrangement were not widely available.
Bick Financial Security Corporation
has developed relationships with several
major financial institutions that enable
the appropriate financial restructuring
to implement the Deduct My Mortgage™
strategy.
3. What happens when interest rates
change?
Because the interest costs are a
deductible expense,when interest rates
increase so does the deductible amount.
The reverse is also true when interest
rates decline, the deduction declines.
4. What if the investment performance
is poor?
There is historical
evidence(1) to indicate that markets
can produce a conservative average annual
rate of return to be 6% to 8% over a
15-25 year mortgage amortization period.
Statistical data has also shown that
a market can maintain a positive return
19 times out of 20 over a 5 year period(2).
The Deduct My Mortgage strategy involves
the systematic exchanging of bad debt
(non-deductible debt) into smart debt
(deductible). This strategy can fall
to a 3% annual average rate of return
over the duration of the mortgage period
and still be successful(3).
(1) Average performance based on 15
year rolling period (Global Equity Market):
Source Concept Toolkit 73 Years of Stock
Market History
(2) Assuming a managed tax rate of 42%
and interest rate of 6%
(3) Average performance based on 10
year rolling period (Global Equity Market):
Source: Concept Toolkit 73 Years of
Stock Market History
5. What if the federal government
changes the income tax rule?
Currently, interest deductibility
on borrowed money for investment purposes
is allowed. This can be confirmed by
viewing Canada Revenue Agency forms
and publications, Interest Deductibility
and Related Issues NO.: IT-533
section 31 and examples #8 and #9.
If the government changes the income
tax legislation, we will review the
implications and identify alternative
options.
6. What if I lose my job or if
my marriage ends?
The strategy builds wealth over
time. So, if you lose your employment
income you now have an investment
portfolio to draw upon until new employment
is found. Be advised that interest
deductibility is reduced by the amount
of funds withdrawn.
If a marital break up occurs or continued
unemployment persists this strategy
can easily be stopped. The Deduct
My Mortggae™ strategy uses
common financial facilities and investments
that can be stopped, withdrawn or changed
with ease. In fact, the strategy is
much easier to unwind, than selling
your house or a business.
7. What if I worry a lot about
money?
This may be the biggest concern
as you may be emotionally motivated
to take action based upon short-term
market value fluctuations of your
investment performance. We refer to
this as the emotional rollercoaster.
The fact is that investments are priced
daily in the market, based upon what
other people are willing to pay and
at a price that the seller is willing
to sell.
If you purchased your home last year
for $200,000 and today your neighbour
down the street with an identical
house sold their home for $150,000
would you sell your home for $150,000?
With professional guidance we can help
you rationalize emotions by focusing
on the facts. As your financial advisor
we are here to guide you every step
of the way. Our motivation is for you
to achieve financial success.
8. Where can I learn more?
1. Attend one of our regular information
seminars, (see seminar
registration for upcoming events).
2. Read the book "The Smith Manoeuvre",
(contact us
for a copy).
3. Call us
for a complementary initial consultation.
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