Tax Deductible Mortgage Using The Smith Maneuver

I'm building my own banking system because I want to privatize my assets. And anytime I decide to write off interest, I draw attention from eyeballs at the CRA that I don't want that attention.

You know, this is really something that is going to help your financial future. It's not a gimmick, it's not a joke. It is solid, great control of your finances. Foreign.

Okay. Hello, Canada. Listen, you've heard about the process of becoming your own bank or the infinite bank concept in Canada, but is the infinite banking concept meant to replace anything that you're already doing financially today? Well, the answer is no. It is an and process. The process of becoming your own banker is only meant to enhance anything that you're already doing financially today. Including the title of this video, the Smith Maneuver. So I'm here today with my client Rebecca and my colleague Paulo, and we're going to expand a little bit on exactly how Rebecca uses her system in tandem with everything that she was already doing prior to implementing the process. And one particular thing that we're going to focus on is like what is the Smith maneuver? How does that work and how does it marry in with the process of becoming her own banker? Rebecca?

So for those that don't know, the Smith Maneuver is a way to convert your non tax deductible mortgage debt into a tax deductible debt. So it's used in combination with.

A.

Reedanceable mortgage. So I'm in a really fortunate position that having personal rental property in my personal name, so I can do something called like an accelerated Smith Maneuver. So I actually take my rental income and I put that every month as a lump sum payment down onto the principal of my personal residence mortgage. And what that does is it creates space in the re advanceable portion of the line of credit. So then I use that line of credit in order to pay all of the expenses for my rental property, which was like the mortgage, the taxes, utilities, and I can then write off that interest that I pay on that line of credit. So the benefits for me are having that extra tax deduction but also paying off the mortgage. Like I think when I calculated it out, I would have my entire mortgage actually paid off in five years and seven months doing this process. So then I will no longer actually have a personal mortgage except for tied to that line of credit, which is a tax deduction, whereas right now it's not. So the other thing with the Smith Maneuver is that.

It doesn't add, I guess, extra payments to your normal cash flow because you actually use that additional line of credit access to pay the interest.

One of the youngest IBC practitioners in Canada right now on the call, this little fella. This is pretty great.

Fantastic.

So Rebecca, I just want to take a second, make sure Canada has a good, what we're talking about here. So. Because sometimes the language and different things. So basically, if I'm correctly, just to break it down real simple, you have your principal mortgage and then obviously the home in the home, you have equity in that home. And we, we can go and we can qualify for something called a HELOC or a home equity line of credit. And the way. Yeah, it's not quite the same, but it's similar to that.

It's similar, yeah, because it's a readmanceable mortgage. So it actually has a HELOC portion of 65% and then a fixed portion of 15%. Because I did it when I had 20% equity in my home.

So yeah, no, I got that. So it is a home equity line and as you're paying down the principal of the 15%, the mortgage, that principal will show up as equity that's available. Like the home equity line is increasing. Is that right?

Yeah, it actually.

The entire thing, the whole 80% originally actually shows up as a fixed term mortgage and then as that's paid down, then the line of credit starts becoming available. So it doesn't start out as a heloc, it starts out as a fixed term and then converts into a heloc.

So that would depend, I guess on where you're at in the cycle. Like if there was equity there, you could probably have some HELOC available. Available and then you could.

Yes, got it.

Perfect. Okay, cool. Not to get too complex here, but so basically as you're paying down that principal though, that HELOC is going to what you have access to, the equity is going to be expanding. Is that right? The way that.

Yes.

Okay, great.

Absolutely. And so in, in essence, it's like I said, I'm not actually reducing the amount of debt that I have.

Right.

I'm maintaining the same level of debt just where that debt is being on a, a non interest deductible debt to an interest deductible debt.

Right. Because you're probably working with an accountant. Obviously we're not make this really clear. We are infinite banking practitioners. We're coaching people to implement the process of becoming a real banker in Canada. And if you want to learn more about the process of becoming your own banker, go to watchibc.com that's watchibc.com so you can get access to a 90 minute webinar so you can learn more about how this process actually works. I want to make sure that people are aware that we're not actually coaching or advising people on the Smith Maneuver. We're merely highlighting how it works and how, more importantly, how Rebecca is actually using the Smith Maneuver in tandem with the process of becoming your own banker. But just, just so I'm clear, when you talked about, just so that, you know, people can understand what we're saying here, obviously if you had a traditional residential mortgage and you had a line of credit and let's say that home equity line of credit, everything was maxed out. Well, obviously I'm paying interest on the line of credit, I'm paying principal to my mortgage and interest there. And none of that is really benefiting me. All the money is flowing to someone else's bank and there is not even any tax deductions. What you're doing is probably working with getting some good guidance from a tax professional. But you have, you're, you're very specific about how you're using that line of credit, that home equity line of credit debt, specifically to deal with investment properties, specifically to deal with expenses. So that that interest that you're paying then becomes tax deductible.

Right, Exactly. It's, you have to make sure that like, you know, everything flows through like one specific account. And it's extremely, extremely clear that that is the only use of those funds.

And so would you recommend like we do, Rebecca, if somebody was considering this today in Canada, they should probably work with a good coach, right? Somebody who actually understands the Smith Maneuver. Somebody understands, you know, absolutely. Tax professor.

And there is Smith Maneuver certified mortgage brokers and accountants out there. So it's really highly recommended that you do speak to, to one of them if you want to go through the process.

That is so cool. So somebody who actually practices what they teach other people. Imagine that. Okay, that's really great. So. Yeah, right. So, so maybe Rebecca, obviously if you're taking your extra income, let's assume the process becoming a real banker is not, we're not talking about that. You could take your extra income, you could take lump sums of money, a tax return, a gift from member, you can take that. If you see that that's in your best interest, you can put that on the principal of the mortgage and then have more reinventable to be able to do more things. But now that we're implementing the process of becoming your own banker, correct me If I'm wrong, where instead of your own hard earned money that you actually work for, what Nelson would refer to as real money, whose money are you now using to chip away at your mortgage and have read danceable equity on your, on your property?

Yeah, well, the way that I'm implementing this is that once the, you know, the expenses are paid on the bank line of credit that I have, I'm then taking policy loans and then paying off that line of credit with policy loans so that I'm recapturing all of that interest. I still have to pay the interest because if I didn't, it wouldn't be tax deductible. But now all that interest that I pay is coming back into my family system and into my policy system. So I'm actually recapturing all that interest instead of paying it to the bank. And then I always say it's almost like tenfold because you know, with the volume of interest that you normally pay on a mortgage debt here in Canada.

Once you switch it over, if I can have my whole personal residence mortgage paid off in 5.7 years instead of the normal 25.

Yeah, that's a huge amount of interest that I'm not paying to banks and that I'm actually going to be able to recapture myself and just keep adding it to our family policy.

And then also on top of that is having that line of credit open and clear. If we do have some opportunity come up, we actually would still be able to access that and take advantage of another opportunity which we do a lot of. Like in real estate, we do a lot of burr deals with joint venture partners. So having access to, you know, $150,000 of capital that we can just get in the blink of an eye is really beneficial for our family as well.

Just for the viewers, I caught that quickly, could you just quickly break down that acronym for us?

Brrrr.

BRRRR deals for real estate. What does that stand for?

A BRRRR is a buy, renovate, rent, refinance and repeat deal. So you purchase a rental property that's in need.

You do a complete renovation on it and then have it re rented out and then do a new evaluation on it and then it usually is increased in value. So you do a refinance and then it'll generally pay out. You know that the capital that you've put into the property and then you basically can, you know, take that money and do the same thing over and over again. So it's a really great way to be able to build your, your real estate portfolio by recycling the same capital over again.

That's awesome. I love that word, recycling. So. So, Paulo, if we're, if we're picking up what Rebecca's laying down here, by implementing the process of becoming your own banker, we can really see the and happening here. Is she, is she limiting her options in any way? I would say no way. And it almost looks like she's giving herself a double tailwind right through, through this new maneuver that we're learning about, the Smith maneuver, and also what IBC can offer her. So this double tailwind, I could see how it can accelerate everything that you're doing financially. Yeah. And the other thing about that is, you know, when she's redirecting and recapturing that interest we're talking about, ideally we're replacing policies with what's called a mutual insurance company in Canada. So who owns the mutual insurance company while it's mutually owned by the participating policyholders. Congratulations. So if she's sending more capital back to the company that she co owns rather than someone else's bank, who's that money being put to work for.

Her? All of her. That's right.

Me and everybody else that's a policy.

Owner, by the way, Rebecca, we really appreciate it because it's benefiting everybody in the community. So that's really good. And so.

Now I just want to clearly kind of understand. So you're basically, you are actually putting your own money on the mortgage. I mean, they call it becoming your own banker for a reason. Because it's your bank, you actually get to do what you think is best. So you're putting your money on the mortgage and then you're able to access more heloc. You're using that for expenses in the property, then you're getting that tax deduction. But then you're building up your policy system and then you're accessing policy loans and you're not putting that on the mortgage portion, you're putting that, you're recapturing the debt on the, on the, on the line of credit side.

Yeah. When I take the policy loans, I do put that money towards the line of credit side, not as a lump sum onto the.

Principal side.

Now, just so that I'm clear, and I want to be really clear about this because our colleague Henry does such an amazing job. He's a CPA CA and he's an authorized bank practitioner. He helps people understand the tax side of things. Really good. And a lot of times real estate investors and different people. Personally, I think it's Smart to be good to be smart with your taxes and all that kind of stuff. But I also sometimes can find that taxes are trying to reduce taxes or avoid taxes. I find that it's a distraction. We miss opportunities a lot. I'm curious to know. You're getting the tax deduction on the line of credit. You're deducting that interest. You're not deducting the interest on your policy loans, is that right?

Or I can actually. As long as I make the payment on the policy loan, you can then I can deduct that interest because it is interest that I paid in order to.

Earn investment income, which is the income from my rental property. So. Yes. Which is like, that's why it just. The whole thing again, like, like Paula said, it's a tailwind because not only am I just giving that interest away to the bank anymore so that I never see it again by paying those policy loan interest, and I have that option, I can just pay interest only I actually get to reborrow that interest again in my policy loan, which I can then apply back to the line of credit. Right?

Yeah. No, that's really good. My question, though, to be clear, just so I'm clear, I know that you can write off the interest. What I'm asking is, are you actually writing off the interest?

Yeah, yeah, absolutely. I wouldn't be doing this if I wasn't.

No, no. I mean from the policy loans.

Yeah, yeah.

And only reason.

I bring that up personally is because I personally, I look at the options. I do not and I will not write off policy loan interest. That's just my own preference. The technical things that I don't want to get into, just as it relates to the adjusted cost basis of the policy and whatnot. But also, I'm building my own banking system because I want to privatize my assets. And any time I decide to write off interest, I draw attention from eyeballs at the CRA that I don't want that attention. But here's the deal. Like I said, just because that works for me and that's what I want to do, doesn't mean that that's what Rebecca has to do. Because it's your own bank, you get to you and your family. I just wanted to point that out because I think we have some videos in the playlist where Henry really expands on that and helps people understand the kind of. The pros and cons to actually write enough those. Those policy loan interest. But to Paula's point earlier, all it's doing is giving you More options. It's just you're creating what Nelson called exactly in his book, a perpetual tailwind. You're just accelerating everything that you're already doing. Like you were doing this kind of stuff way before you learned about the process, becoming your own banker, right?

Yeah, yeah. I had started the process beforehand. So like I said, this just to me is so much better because I just have so much more control over it. I have control over the repayment schedule. It doesn't affect, affect my line or like my credit rating if I, you know, I'm looking to get another mortgage for another rental property, whereas, you know, having a maxed out line of credit normally does. Right. So.

And you'd said that you've expanded your program. Now we're up to four policies. So not only are you able to do all these things and benefit from the process, becoming your own banker, having, you know, uninterrupted growth inside, you know, inside your policy on the capital that's accumulating every day, get to participate in the profits and all. That's all well and good, but you had mentioned that you now have a policy on your son, you have a policy on your husband, you have a policy on your own life, and you have a policy on mom. And you're also working with mom. You're doing some joint venture deals with mom as well, right?

Yeah, yeah. One of my biggest things that I wanted to accomplish when I started doing a lot more real estate again a couple years ago was I wanted to help my mother live a better retirement because she was a single mom, you know, when we had a father who didn't really pay child support. So we never had a lot growing up. And so she had a really hard time saving for her retirement. But she, like, she still did a fantastic job for like, what she could do because she, she's very, very, you know, good at saving and always really, really good at watching her money. But I really wanted to help her live the retirement that I think that she deserves. So I had asked her.

What she needed to feel like she could live the retirement of her dreams. And she gave me a figure which was about double what her current income had been. And so my goal was to get her to that figure. And we actually did accomplish that last November. We finally got her to doubled her income for her retirement. So I figured, okay, now that she's, she's taken care of, then we can, yeah, start moving on and start working with building the assets for our family too.

So this is really good, Candida. You got to get what's going on here. First of all, if you want to know more about the process of becoming a real banker, please go to watchibc.com to get access to that 90 minute webinar. We were left with some really good coaching tips, an actual set of rules to follow as it relates to implementing the process of becoming your own banker. Nelson talks about diversifying lives, insured, thinking long range. So thinking well into the future, you're already thinking about mom and that she might have medical concerns or things that might come up. She might have the need to access more capital as she gets older. So we can get that from the policy. We know that. Not if, but when, hopefully long into the future. But mom will pass away and there's going to be some expenses incurred there. And then there's going to be a windfall of cash that's going to come in. You're going to know exactly where to put that money and expand the system further. Your life insured, your husband's life insured, and your young son is life insured. So you're thinking long range. You've expanded your policy system so you're not afraid to capitalize. You are not stealing the P's because you are recycling that money and sending more money back to the life company. Help me out.

Rethink. Your thinking is number five.

Don't deal with banks. Don't do business with banks. Okay, listen, Nelson.

Nelson, God bless your soul, we know we're gonna go out there. We're kind of bending the rules a little bit where we are using the bank's money. But it's in the interest of expanding your wealth and expanding your system in one day. Someday you'll just get the truth. You'll fully control the banking function, still have all those assets and still all that equity. And you can decide to do business with banks or not. One of my great colleagues, Sarblo Gill, always says, paulo, can you take the equity to heaven with you?

Well, can't do that. Can't do that. So you may as well use it while you're here on earth to do some good and to expand your wealth. Rebecca, as per usual, I'm not surprised. You brought a ton of value. Thanks so much for sharing a bit more about what you do with your process and how you use your own system. And I'm sure just like last time when we posted, I had a lot of people reaching out. I'm sure we'll hear some more people that want to reach out and hear more from you. Do you have Any thoughts? Anything in closing that you can leave some wisdom with people?

I just really have to say, if you're thinking about doing this, really, I can't say enough good things about it. I always say that my two biggest mistakes were one, not starting my policy. As soon as I found out about Infinite Banking, I spent about eight months in a little rabbit hole trying to learn about it, thinking that it can't be this good, only to find out that, yeah, it's actually even better than I thought.

So I really wish that I had started it as soon as I found out. And then second, that I wish that I had put in more capital because what I started putting in with my first policy, I soon just realized that, you know, I was capable of so much more. So I've actually tripled the amount that I originally started putting into policies. And I, you know, I, if I wasn't on maternity leave, I would probably had, would have had more than that by now. But I wanted to make sure that it was like a really sustainable amount. So it's, yeah, like I said, it really will benefit anybody. Like, especially if you're in that middle class like most of us are, or, you know, this, this is really something that is going to help your financial future. Like, it's, it's not a gimmick, it's not a joke. It's. It is solid, great control of your finances, which everybody can use.

Rebecca, you're awesome. Thanks so much. So, just Canada, to Rebecca's point, do not get analysis paralysis, but make sure you educate yourself. Get a copy of our Nelson Nash's book, watchibc.com don't be afraid to leave a comment, ask a question, get engaged, get yourself educated and get started in the process because you're going to be using money and banking for the rest of the days that you're here on Planet Earth. All the best. Until next time, take care.