Why the long face Mr. Smith?

On Jan. 8th, 2009 the Supreme Court of Canada handed down a decision making a form of the “smith manoeuvre” a tax avoidance move. While deemed not technically illegal, the court said it was an obvious attempt to avoid taxes. The government used a tax avoidance regulation (GAAR – General anti avoidance rule) to deem the manoeuvre an abuse of tax rules. The premise of the smith manoeuvre is to cash in your unregistered investments to pay the balance of your mortgage. You would then refinance your principle residence to buy back non registered investments. Previously, under CRA guidelines this makes the interest you pay on your principle residence a tax deduction.