Interview with Robinson Smith – The Smith Manoeuvre

Matt Parker (00:05): Hey. Matt Parker here. Very excited to have Robinson Smith with me. Robinson, how are you today?

Robinson Smith (00:10): I'm very well. Thanks, Matt. How are you doing?

Matt Parker (00:12): Doing very well. Thank you. Very excited to have you here. Robinson Smith is a financial strategist and bestselling author, and we're in for a treat with some very good insight in information around the Smith Manoeuvre today and sort of creating tax deductability from your mortgage. So again, I appreciate it. And Robinson, I talk to a lot of clients about leveraging a lot of their assets to buy real estate and maybe not having adequate funds to create an investment strategy because of that fact. You've been in the financial industry for many years now. What are the main complaints that you're hearing from Canadians out there?

Robinson Smith (00:59): Quite simply, Matt, that it's tough for them to get ahead or they simply can't get ahead. The main complaint is really taxation. We pay around 50% of our income in taxes. That's more than we spend on food, clothing, and shelter combined. Okay. Three simple necessities for simple survival, we pay more in tax than all of those combined. We're consistently in the top five highest tax paying citizenry on the planet.

Robinson Smith (01:28): Now, while we shouldn't mind paying taxes, it's understandable that we get upset about it when we see such extreme examples of government waste on a regular basis. And further on top of high taxation, anyone who owns a home, who's got a mortgage that takes a huge chunk out of their paycheck. So just the cost of living... I've met hundreds of families earning six figure income saying, "I can't make ends meet. It's too tough." So we got taxation, we got high... The expense of our mortgages. We've got insufficient pensions savings, all this stuff. It's just really, really difficult for Canadians to get ahead.

Matt Parker (02:10): Yeah, you bring up some good points. I mean, from my business standpoint, being that we're focused more on Vancouver, Greater Vancouver and in surrounding areas, since these last few years especially I'm seeing clients leveraging themselves more from a mortgage standpoint meaning qualifying near their sort of top thresholds versus where they generally used to be a little bit more conservative, just primarily because of the real estate price in general and real estate cost is really driving up. So really yes, they have these high payments. There doesn't seem like there's as much wiggle room for other, whether it's investment or just living life and enjoying things like that. So are you seeing similar situations across Canada?

Robinson Smith (03:03): Yeah. I mean, it doesn't matter where you go. There isn't a lot of wiggle room. We Canadians, apart from the fact that we're raising families, we've got two main financial goals, two very important financial goals. One we've got this big ugly, expensive mortgage, and we want to get rid of it. Right? So it's expensive, it takes a lot of our paycheck. So that's one goal, to get rid of our mortgage. Secondly, our other goal is that we want to be able to save for our retirement. We want to put away money so that we can retire comfortably one day.

Robinson Smith (03:32): So the question of which as a Canadian do I approach first, that's often answered for me not by me because nobody cares if I put my money aside and invest for my future. No one cares, but if I don't make my mortgage payment, someone certainly does care. So that's, with limited resources, what we tend to focus on plus what's being drilled into our brains that we need to be cleared title by the time we retire. So in any event, we start focusing on paying down the mortgage, and once that's gone, we don't have a mortgage payment anymore. Now we can start saving for our retirement.

Robinson Smith (04:06): Well, it's too late, Matt. Right? We've missed out on years and years and years, the 25, 30 years that we're making mortgage payments trying to get clear title, missed out on all those years of compound growth because we haven't been investing or we haven't been investing enough. So it gets very expensive for Canadians when they focus on the sequential approach. First the mortgage then investment. But The Smith Manoeuvre solve this problem because it allows the Canadian homeowner to do both at the same time. You're going to eliminate your expensive mortgage and record time and you're also going to start saving for your retirement. And it doesn't cost any new cash flow from the homeowner's pockets on a monthly basis.

Matt Parker (04:45): Yeah. And you brought up at the beginning taxation as a problem. So what about the Smith Manoeuvre? How does that help with taxation?

Robinson Smith (04:56): Yeah. We as Canadian, there might not be a whole lot that we can do with regards to how many different types of taxes we pay or what the rates are on those taxes. But there most certainly is something we can do about how much tax we pay given those tax rates. The Smith Manoeuvre is debt conversion strategy. And by implementing it, the homeowner's going to immediately start changing that non deductible debt that they took out from the bank to buy their house into tax deductible debt. So we're going to lower our tax bill. Increasingly over time, we're going to generate more and more tax deductions because when we access the equity that we're paying down on our mortgage in order to invest, which is how The Smith Manoeuvre works.

Robinson Smith (05:41): We're borrowing to invest with the reasonable expectation of generating income. Okay. And we can deduct the interest. Tax deductible debt creates wealth, non-tax deductible debt destroys wealth. So by implementing The Smith Manoeuvre we're accessing the equity in our homes as fast as we're creating it with that regular mortgage payment that we're making anyways whether we're doing the strategy or not. We're accessing that equity, we're generating tax deductions, we're reducing our tax bill. And the only reason we're reducing our tax bill is because we're borrowing to invest with the reasonable expectation of generating income. So we're putting these funds into stocks, bonds, mutual funds, ETFs, mixed rates investment, real estate. I'm investing in my business or in somebody else's business.

Robinson Smith (06:27): So this cycle of benefits is we're generating increasingly large tax deductions over the years, we're investing significant sums on a monthly basis starting now, not waiting until that mortgage is paid off. And because of this tax relief, we get a tax refund at the end of the year because every two weeks the government takes tax off our paycheck for what they think is fair, what we'll owe. Well, if we're implementing the strategy, when they get our tax return of tax time they say, "We took too much money from you because you've got all these tax deducts. We're going to send you money back." And this money that we receive is simply because we're doing the Smith Manoeuvre. So we take that money that we otherwise wouldn't have, we make a prepayment against our mortgage for that back and invest it as well. So the more we prepay that mortgage, the faster it's gone.

Matt Parker (07:13): Yeah. Great points. I mean, I hear a lot even with whether it's friends or family or when helping clients over the years of the concern of not getting rid of the debt, and keeping the same debt load in a sense which just knowing the strategy a lot more in detail than many people I see the benefits of it. But from your point of view, when you're communicating with a potential Smith Maneuver candidate, how do you explain the risk tolerance and how to handle that from their sort of point of view?

Robinson Smith (07:55): Yeah. The Smith Manoeuvre is a debt conversion strategy. And as I've mentioned, it relies on converting the nature of your debt. So as fast as you're paying down this expensive non deductible debt, you're creating tax deductible debt, right? You're getting all these good things from this process, but you're still maintaining your debt. And that is one of the largest objections we see. And I was an investment advisor for a dozen years. I gave up my practice in the middle of 2018 so I could write the book, do what I'm doing now.

Robinson Smith (08:26): But I met hundreds of families and that's the main objection is, "Well, geez, Robinson. When I was growing up, my parents and my aunts and uncles and grandparents, they always told me, 'Be clear title, pay off your mortgage by the time you retire.'" Well, all this equity that they have in their home, by the time they retire, and as I've mentioned, because they're paying a mortgage off, they haven't been able to invest because all their cash flows going towards the mortgage. Plus that equity's been sitting idle. It's been mouldering, doing nothing, earning less than 0% interest because of inflation now that we have inflation up near 5% or more.

Matt Parker (09:03): Yes.

Robinson Smith (09:04): So the concept of we have to fight inertia. Inertia is what people think is the right thing to do. How they're doing things, how their friends and colleagues are doing things, which is trying to pay out that mortgage. Well, if we can educate them to teach them what the wealthy know very, very clearly is that there's a difference between two types of debt. Deductible or non deductible, good and bad. If we can educate them so they really understand that, they'll see the wisdom of putting their equity to work for themselves.

Matt Parker (09:39): Yeah, no. And another question often is which isn't the case is the thought of cash flow getting out of whack or they're paying for this extra amount that they're, or not extra, but this new mountain that they're borrowing or converting to tax deductible debt. But with the Smith Manoeuvre, it can be set up in a way that it covers that ongoing cost. Is that correct?

Robinson Smith (10:05): Yeah. The magical thing about the Smith Manoeuvre is that the existing mortgage payment that one is making anyways covers the fact that we keep on re-borrowing on a monthly basis. So as I mentioned, as fast as we're paying down that non deductible expensive debt, we're borrowing back tax deductible debt. It's good debt. We're borrowing to invest and generate wealth on that side and generating tax deductions, but increase the balance it does. And with the regular mortgage payment, what's called the increasing efficiency of the regular mortgage payment, more and more of each payment, subsequent monthly payment that I make reduces principle. Less and less is going to interest over time.

Robinson Smith (10:47): So if I make a reduction, my mortgage payment of a thousand dollars against that non deductible mortgage debt, that line of credit on my rebatable mortgage, which Matt, you help arranged that opens up by a thousand. I invest it next month, 1,003 reduces. I borrow back 1,003, three bucks or so goes to service the first month's borrowing of a thousand bucks leaving another thousand to invest. Next month, 1,005. Five to interest for the first two months borrowed, a thousand to invest and so on and so forth. So you can certainly put additional cash flow towards your Smith Manouevre if you wish, but you don't have to.

Matt Parker (11:23): Yeah. Which is such a hidden benefit of it that most people don't realize is the fact that cash flow is the same, but you're now accessing this new tax deductible debt, which benefits you greatly in a few different areas, which is amazing. I know that they're you've referred to them as accelerators and there's many accelerators that can be implemented as well on top of just the traditional pay down and reinvest of the line of credit growth. Did you want to touch on a few of the accelerators and what they are and how they work?

Robinson Smith (12:01): Yeah, just briefly the implementation of the accelerators, firstly relies that you have the right type of financing, a rebatable mortgage. And again, that's where you come in as a Smith Manoeuvre certified professional mortgage broker. Matt, you can help your clients with the financing, but all we're doing with the various accelerators is restructuring our cash flow. The cash flow diversion, for example. If I'm investing 400, 500 bucks a month on a monthly basis, that's great. I'm doing something for my future, but instead of investing it directly for my bank account after my paycheck gets cashed, I first divert that cash against my mortgage as a prepayment, then pull it out and get it invested.

Robinson Smith (12:43): So I'm really accelerating the elimination of that non deductible mortgage debt. I'm accelerating the creation of tax deductions, which does wonderful things for my tax bill. And I'm still getting invested that four or 500 bucks. So I'm no new cash flows come out of my pocket in order to generate additional benefits other than investing from cash. There's the debt swap. If I've got $10,000 of mutual funds, I can sell those for cash, prepay my mortgage, borrow that back and then buy the exact same asset if I want. And I can accomplish this in seven to 10 days, maybe less. I still have that $10,000 invested, but I've knocked 10 grand of non deductible bad debt off my mortgage, replaced it with 10,000 of beneficial debt, which is tax deductible. And again, still invested.

Robinson Smith (13:24): Then there's the drip accelerator. Take dividends in cash, prepay re-borrow, and then buy the asset rather than having these dividends reinvest automatically. Taxation is the same on an annual basis. Prime the pump. Matt, if you refinance me and I have immediately available credit at my disposal because the value of my house has gone up over the years, I have mortgage payments. Well, I can start doing the Smith Manoeuvre, but I can immediately take out ten thousand, fifty thousand, a hundred thousand dollars available credit and put it to work by investing or maybe buying investment real estate.

Robinson Smith (13:55): Now, this is additional leverage. We're not converting debt here with prime to pump. We're taking more debt out than we owe already before we do this. But again, it's tax deductible debt and we're buying an asset which will appreciate value. And so Matt, again, you refinance me into the right type of mortgage. I've got some available credit. Maybe I do want to buy my first piece of investment property, right? And at that point I can start to implement the cash flow down. And that's a very powerful accelerator, right? Given what you do, Matt, you're interested in real estate, probably invested in real estate, you help your clients invest in real estate.

Robinson Smith (14:38): One of the most important things and valuable things you can do is really educate them on the cash flow down. And the way that this accelerator works is so I've pulled out 150,000 bucks, whatever it is, that's a down payment on a rental property. I go and I get a mortgage for that rental property. I go find renters. They pay me 3000 bucks a month. Well, typically what happens the way most Canadians do it, that $3,000 comes in to their new bank account for their rental property, and then it immediately goes out. Hopefully not all of it. Hopefully your cash is flow positive, but let's say 3000 comes in and 3000 goes out to service the expenses on that business, your rental property, the mortgage maintenance upkeep, all these sorts of things, maybe utilities.

Robinson Smith (15:21): So money comes in, money goes out, but with the cash flow down, after that, those rental receipts come in, don't pay your expenses on that rental just yet. First take that $3,000 and prepay your own mortgage, the house in which you live then borrow back that 3000 when the line of credit limit opens up and then service the expenses on that rental property. 3000 in 3000 out. First, you're running it through your mortgage. And I tell you, if you prepay your mortgage, and Matt, you'll know this better than I do that 25 year advertise mortgage has gone in ten years, eight years, seven years, six years that non deductible debt has gone. You replaced it with tax deductible debts, doing fantastic things for your tax bill. Plus you've got this appreciating asset tas investment [inaudible 00:16:05].

Matt Parker (16:06): Yeah. I mean so much good information in there. Like you said, it just creates so much financial benefit utilizing the equity growth in the home over time, paying down the mortgage, creating the tax deductible debt. I know this is close to home for you. You recently released your new book, Master Your Mortgage For Financial Freedom. And I understand just knowing you over over some time now is based on your father's original book. So it must be a very personal endeavor for you if you'd like to speak on that.

Robinson Smith (16:46): Yeah. Well, when my father became a financial advisor back in mid eighties he was interested in the fact that the Americans could deduct the interest, excuse me, a good portion of their interest on their mortgages, but we Canadians couldn't. Now, when an American sells their principal residents, they're subject to capital gains, in Canada were not. But with the Smith Manoeuvre that he developed, all of a sudden we get the best of both worlds. So we still have that capital gains exemption when we sell our principal agents, but now we're able to generate tax deductions just like our American can, American cousins are able to. So back when he became an advisor, that was something he thought about. He read the Tax Act, terribly interesting read. I suggest you do it, Matt.

Robinson Smith (17:32): And he came up with this strategy and he put his clients into it for about 15 years before he retired from advising to write his book. And that came out in 2002. So it's 20 years old, his book. The reason I wrote my book in 2019 was because dad was dad was a numbers guy, and it's not the most easy read, his book. So I wanted to maybe put more realistic examples in it, update the values. His book is talking about a hundred thousand dollars mortgage. Well, nobody's got a hundred thousand dollars mortgage anymore. They get out. So there's a lot of updating to do. But it was yeah, really important to me that I be able to continue his mission of making sure every Canadian homeowner across the country is aware of the strategy because it's not easy out there. Canadians need help.

Matt Parker (18:30): Yeah. And you've spearheaded which is a great path forward which is implementing Smith Maouevre certified professionals, bringing more awareness to The Smith Manoeuvre by leveraging professionals across the country. I know I'm grateful to have that designation, to have that opportunity as well, to help clients structure their mortgage to benefit from The Smith Manoeuvre and learn about it, which many people still I think are unaware of the true benefits that can be achieved from it. So thank you for your work. And I'm just grateful that to have you here. Your insight is invaluable. And if anyone wanted to learn more about the Smith Manoeuvre or just reach out or they're interested in becoming a certified professional or homeowner courses or anything like that, where's the best place to go for them to get more information?

Robinson Smith (19:32): Yeah. To get a solid foundation understanding of the strategy, people can go to smithman.net. There's free giveaways. There's freebies. There's the book. We got the Smith Manoeuvre calculator. We got the homeowner's course and a lot of FAQs, a lot of information by itsel just on the website there, of course. As regards to the Smith Manoeuvre certified professional network, I just want to stress that over the years both my father and I had heard many times of financial professionals implementing the strategy for their clients incorrectly. Either they weren't maximizing the possibilities of the strategy or it was completely wrong. So there's a lot of misunderstanding out there amongst financial professionals, financial journalists, the internet is a rat's nest of misinformation. Do not go to the internet for information. You're going to get long, bad information.

Matt Parker (20:23): Yes.

Robinson Smith (20:24): Smithman.net. But this misinformation, that's the reason I developed The Smith Certified Professional accreditation program, which I know is a bit of a mouthful. But we're training up mortgage brokers, realtors, investment advisors, insurance brokers, accountants, all the different types of professionals that a Canadian should surround themselves within any event. Now they're able to go to local professionals such as yourself on the mortgage side, Matt, to be confident that they're getting quality advice. These people have been trained in the strategy. Their SMCP mortgage broker will know their SMCP investment advisor who will know their account, who will know, right? Everyone is plugged into this network.

Robinson Smith (21:05): So it's a very valuable network for Canadian homeowners because being able to have people locally who can help you implement the strategy, which isn't difficult to explain on an elevator going up to the sixth floor. When you're looking at the back end of this, the stuff, the angles that the professionals deal with, mortgage, investment accounting. There's a lot of stuff that goes on in the background. So you want to be sure that you're connected with the Smith Manoeuvre certified professional, and anyone listening to this should contact you Matt because you can get the process started. But again, smithman.net, if you're interested to becoming SMCP there's a link there. If you're interested to be connected with SMCP, there's a link on the website. But again, you're the first stop for anyone who's watching this because you are as mentioned a Smith Manoeuvre certified professional.

Matt Parker (21:53): Thank you. Thank you, Robinson. Appreciate that. Thank you for your time as always and all of the work you're doing and we're grateful for it, and thanks again.

Robinson Smith (22:03): You're very welcome, Matt. Pleasure.