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  • The Smith Manoeuvre

    Posted on April 20th, 2010 No comments
    The Smith Manoeuvre

    The Smith Manoeuvre

    The Smith Manoeuvre (or the Smith Move) is by far one of my favorite Canadian tax strategies. It’s a move that takes your mortgage and allows it to become tax deductible. Normal Canadian citizens are paying endless amounts of interest on their mortgage without any tax breaks, but the smith manoeuvre changes the game for us.

    How it works: In the simplest way possible to explain, the Smith Manoeuvre is a way to turn your mortgage into an investment loan, which allows us to write off the interest on the investment loan. In Canadian tax law, the income tax act allows us to write off interest on income producing investments or rental income properties. So the objective here is to take your mortgage and convert it into an investment loan, which in turn gives you a nice tax credit.

    Who Qualifies: Anyone who has savings, investments, or liquid cash. Without anytype of current investment or savings, you will not be able to pay off your mortgage and borrow against your investment. For the best case scenerio, it’s ideal to have investments or savings that total your full amount of the mortgage.

    Advantages

    • A legitimate tax strategy and/or loophole that allows you to save money on your interest
    • You can pay off your non-deductible mortage quite fast
    • You can build a solid low risk investment portfolio while you still have a mortgage

    Disadvantages

    • You need to have some sort of savings or investment in order to execute this manoeuvre
    • The money you invest comes with risk

    Executing the Smith Manoeuvre:

    1. Liquidate your investment, savings or use your cash to pay off your mortgage.
    2. Once your mortgage is paid off, you need to apply for a readvancable mortgage. For a readvancable mortgage, you’ll be required to put 25% down payment. This mortgage will be made up of 2 products, the HELOC (home equity line of credit) and your regular mortgage product. They key in combining both of these loan types is so that you can pay off your mortgage and allow your home equity line of credit to increase.
    3. As your home equity line of credit increases, you can use this money to reinvest in dividend paying stocks or any type of investments. It’s important that you choose very safe investments because high risk investments would defeat the whole purpose of the Smith Manoeuvre. Also make sure you do not invest in RRSP’s or any other type of investments that don’t allow for your interest to be written off.
    4. After you execute the Smith Manoeuvre, it’s very important that you make the proper claims during tax season. When filing your tax, make sure you deduct the total amount of interest you paid on your home equity line of credit. This full portion will be deducted from your income at your personal tax rate.
    5. Take your your tax return and all the income you made from your dividend paying stocks and pay off your mortgage. Once you pay as much as your mortgage off you can go back to using your home equity line of credit to invest your money again. Keep repeating this every year until your mortgage is paid off in full.

    Once you finish executing the Smith Manoeuvre you’ll feel great, nothing feels better then coming up with a legitimate tax strategy to help your finances. There is no need to use expensive accountants or outrageous tax lawyers. The Smith Manoeuvre is something anyone can do. I hope this helps, if you have any questions just make a comment and I’ll be happy to try and help.

    The Smith Manoeuvre Video:

     

  • Gold Target for Week of April 19th

    Posted on April 18th, 2010 No comments

    Sell: $1145 | Stop: $1151 | Target: $1128 | Quick Target: $1137

    It’s always extremely difficult to fight a trend, and in this case selling gold is doing exactly that. Like I’ve said in previous posts, we are entering the largest bull in history but on the way we are going to see pullbacks and corrections. Instead of shorting gold at this point, I’ve only liquidated my positions and taken a short on the QQQQ and SPY.  Since we are in a bull market, my short targets are very tight, but if I were to loosen them up, I can definitely see gold getting back to the 1075-1080 range before it decides to climb back up.

    Enjoy trading everyone!

     

  • CREDIT CARDS: Starwood (SPG) Moves with American Express

    Posted on April 12th, 2010 1 comment
    Canadian Starwood Preferred Guest Credit Card by American Express

    Canadian Starwood Preferred Guest Credit Card by American Express

    After being a die hard Starwood Preferred Guest and using my no fee SPG credit card via MBNA, I’m sad to announce that it has come to an end. SPG has decided to move with AMEX, where the customer service will be great, but the rewards will be less. American Express has decided that it needs to charge customers a $120 annual fee for the same rewards we would of received at MBNA. Clearly this was a business decision on SPG’s end and not a move to help their customers.

    Canadian credit cards are going to become more difficult to choose now, simply because it seems like every company is forcing annual fee’s and rediculous interest rates. The new interest rate will be 19.99% with AMEX. How they justify such extreme interest rates and annual fee’s is beyond me. But only we are to blame for this mess.

    Here are some notes on the new American Express (AMEX) Starwood Preferred Guest (SPG) credit card:

     The Pro

    • $1 = 1 point, the same rate as MBNA’s SPG card
    • Free weekend night after $40,000 in annual purchases
    • Automatic upgrade to Gold Preferred Guest after $30,000 in annual purchases
    • 10,000 welcome bonus points
    • TRAVEL: Car rental & damange insurance, travel accident insurance, travel emergency insurance, baggage insurance, plus more.

    The Con

    • Removal of the 5000 point bonus for every $10,000 spent annualy, up to 15,000 bonus points
    • $120 annual fee
    • Mastercard is more widely used then American Express (MBNA was Mastercard)
    • No more travel insurance, just regular insurance.

      Canadian MBNA Starwood credit card

      Canadian MBNA Starwood credit card

    All in all, you’d expect that that SPG would off their customers more for moving with American Express.  AMEX has higher merchant fee’s, annual fee’s, and they decided to offer much less then MBNA. There is no need to switch over with AMEX unless you like to be ripped off, they simply aren’t offering the same program as MBNA. It looks like us Canadian customers will have to look at a new credit card because AMEX SPG outright stinks.

    You can visit any of their websites here:

    Starwood Preferred Guest / American Express / MBNA Canada