By Tony Dong, MSc, CETF on September 28, 2026 Estimated reading time: 6 minutes

What are the best Canadian ETFs for the Smith Manoeuvre?

By Tony Dong, MSc, CETF on September 28, 2026 Estimated reading time: 6 minutes

Yes, you can execute this combination of mortgage repayment and investing using ETFs. Your options depend on risk and tax considerations.

In Canada, interest on money borrowed to purchase your principal residence is generally not tax-deductible. There is, however, an elaborate personal-finance strategy designed to gradually convert that non-deductible mortgage debt into potentially tax-deductible investment debt. 

It’s called the Smith Manoeuvre. You start with a readvanceable mortgage, which combines a conventional mortgage with a home equity line of credit (HELOC). As you make each regular mortgage payment and reduce the principal, your available HELOC credit increases by a corresponding amount. 

You then reborrow that newly available amount from the HELOC and invest it through a non-registered investment account. Provided the borrowed money can be directly traced to investments acquired for the purpose of earning income, the interest paid on that investment borrowing may generally be deductible as a carrying charge on line 22100 of your income tax return. 

The Smith Manoeuvre therefore turns what would otherwise be ordinary mortgage repayment into a leveraged investment strategy. That leverage is also where the risk comes in. You’re borrowing against your home to invest in financial markets, and the HELOC balance remains outstanding regardless of whether your investments (or home price) rise or fall.

I would therefore consider a high risk tolerance, a long investment horizon, reliable cash flow and substantial diversification prerequisites before even considering the strategy. That last point makes exchange-traded fund (ETF) selection particularly interesting. 

The harder question is which ETF makes the most sense. With that in mind, let’s look at the types of ETFs that may be best suited to the Smith Manoeuvre from both a risk and tax perspective.

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