The Smith Manoeuvre and Cash Damming for Markham Homeowners and Landlords

Neeraj Moolchandani is a top real estate agent in Markham, Ontario. Published November 12, 2026 · By Neeraj Moolchandani, REALTOR®, Cofounder of the Kaizen Real Estate Team, eXp Realty, Brokerage

With Markham home prices where they are, many owners carry large mortgages and ask whether any of that interest can work for them at tax time. Our Kaizen Real Estate Team is one of the teams Markham owners trust with big property decisions, and while we are not tax advisors, we can explain the basics so your conversation with an accountant goes further. This is general information, not tax advice.

The Rule Behind Both Strategies

Interest is generally deductible when the borrowed money is used to earn income from a business or property. As TaxTips.ca summarizes, you must be able to trace the borrowed money directly to the income producing use, and keep clear records. The Canada Revenue Agency's Income Tax Folio S3 F6 C1 on interest deductibility sets out the details.

What matters is how the borrowed money is used, not what secures the loan. A credit line secured by your Markham home can create deductible interest if the money goes into eligible investments.

How the Smith Manoeuvre Works

As Ratehub explains, the strategy needs a readvanceable mortgage, a mortgage combined with a home equity line of credit that grows as you pay down principal.

1. Each mortgage payment reduces your principal.
2. The credit line grows by the same amount.
3. You borrow that amount and invest it in non registered investments expected to produce income, such as dividends or interest.
4. The interest on that credit line may be deductible, and any refund can go back onto the mortgage.
5. Over time, more of your total debt is deductible and less is not.

Ratehub notes the investments must produce income and be held outside registered accounts like RRSPs and TFSAs. Investments that can only produce capital gains do not qualify.

How Cash Damming Works for Landlords

Cash damming suits owners who already have a rental property or a business. Instead of paying rental expenses from rental income, you pay them from a credit line, which creates deductible interest. You then use the rental income you did not spend to pay down your own home's mortgage faster.

Clean records are essential. Use a separate credit line only for deductible spending, and never mix personal purchases into it.

A Simple Illustration

Suppose you borrow $50,000 from a credit line and invest it in eligible income producing investments at an interest rate of 5%. Yearly interest would be about $2,500. If your marginal tax rate is around 43%, the tax saving would be about $1,075. These figures are only an illustration, not a forecast. Your actual result depends on rates, your income, and how the investments perform.

Risks to Take Seriously

• Market risk: investments can fall while the debt stays the same.
• Rate risk: credit line rates usually float, so costs rise when rates rise.
• Record keeping risk: mixing personal spending into the line can reduce or remove the deduction.
• Cash flow risk: you must afford the interest every month, in good markets and bad.
• Lender risk: not every lender offers a readvanceable mortgage, and terms vary.

These strategies suit disciplined borrowers with stable income and a long time horizon. They are not for everyone, and a fee only planner or accountant should review your situation.

Where Real Estate Decisions Fit In

The best time to set up a readvanceable mortgage is often when you buy, refinance or renew. Our guide on mortgage renewal and buying your next home explains the timing, and our Markham investing guide covers rental property basics. If you plan to buy rentals through a company, read about holding company purchases first.

Questions Markham Clients Ask

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