Cash damming vs the Smith Manoeuvre, and which one your income allows

What is the difference between cash damming and the Smith Manoeuvre?

Both convert non-deductible mortgage debt into deductible debt, and they differ in what supplies the deductible use. The Smith Manoeuvre borrows to buy income-producing investments, which adds market exposure. Cash damming re-routes business or rental expenses you already have, which adds none. Eligibility differs: cash damming needs that income.

This page is for someone who could plausibly do either, so it is written to be useful in both directions rather than to arrive anywhere. Each strategy has its own page under the strategy hub, each has its own calculator, and both are linked from here as often as the other.

Smith Maneuver vs cash damming, side by side

Compared on	Cash damming	Smith Manoeuvre
Who can run it	Rental owners, the self-employed, partners, incorporated professionals	Anyone with a readvanceable mortgage and non-registered investing room
What it needs	Deductible-purpose expenses you already pay, and a second line of credit	A readvanceable mortgage, cash to carry the interest, tolerance for leverage
What creates the claimable interest	Expenses re-routed through the line	Borrowed money invested in income-producing assets
New market exposure	None	Yes — the portfolio is bought with borrowed money
Speed of conversion	The rate expenses are incurred	The rate mortgage principal is repaid
What you hold at the end	A smaller mortgage, sooner	A portfolio, and a credit-line balance the size of the old mortgage
Where it fails	Commingling in the dedicated line	Commingling, rate risk, and sequence risk
Paperwork	Per expense, monthly	Per draw and per distribution, for decades

What decides it is your income, not your preference

Cash damming needs deductible-purpose spending. Without a rental, a business, or a partnership interest generating real expenses, there is nothing to route and no version of the technique that works around it. That single fact settles the question for most households before any of the rest of this page matters.

The Smith Manoeuvre needs a readvanceable mortgage and a willingness to hold investments bought with borrowed money. An ordinary home-equity line has a fixed limit, so repaying principal frees no new room, and the loop that gives the strategy its name does not start.

Neither gate is a matter of taste. Check which ones you are actually behind, and the field usually narrows on its own.

What each one converts, and what it costs

They convert at different speeds and for different reasons, and the two rates are not comparable in the abstract. A rental owner with four thousand dollars a month of deductible-purpose expenses converts far faster than a mortgage’s principal schedule allows; an owner with three hundred dollars a month converts far slower. Both figures are your own, which is why the honest version of this comparison is two projections rather than a claim: what routing expenses does to the two debts and what re-borrowing repaid principal does to them run the same engine, print the same kind of assumption set, and subtract the same baseline.

The costs differ in kind. Cash damming’s cost is the spread between the two rates: pay more on the line than the mortgage charged and the claim has to make up the difference, which it does not always do. The Smith Manoeuvre’s cost is the leverage itself — the debt does not shrink, it changes character, and it is now standing behind a portfolio that can fall.

Running both

They are not exclusive, and for a household that qualifies for both they compound: the dam retires the non-deductible mortgage faster, and a faster-falling mortgage on a readvanceable facility frees borrowing room faster. The paperwork does not compound, though — it doubles, and it doubles in the worst way, because two dedicated facilities that both have to stay clean is twice the surface for one convenient personal charge to land on.

Run both only if the record-keeping for one is already working. If it is not, the second facility adds contamination risk to a position that had it already.

Where each one fails

Both fail the same way first. A line that funded a deductible-purpose expense also paid for something personal, a draw sat in a chequing account before it was spent, interest was capitalised in a tight month — after any of those, the balance carries two purposes and the claimable share becomes a proportion somebody has to defend.

After that they diverge. What the Smith Manoeuvre costs when it goes wrong is mostly about markets and rates: the portfolio can fall while the debt does not, and the order of the returns matters as much as their average. Cash damming has no portfolio to fall. Its failure is quieter and almost entirely clerical, which is the argument for keeping the two lanes apart from the first month rather than sorting them out at year end.

Whether either suits your circumstances is a question for a qualified professional. What this page can settle is which of them your income permits, and what each one would be worth if you ran it — the two questions a comparison should answer before anyone starts recommending.