The only American who won't acknowledge this Administration's failed economic policies is Joe Biden. "Shrink-flation' is the least of our worries compared to rising rents and stagnant wages, but it is an undeniable indicator of how bad our inflation has gotten. I have $100k that i like to invest in a non-retirement account, any advice on that?
I would avoid index funds, mutual funds, and specific stocks for the time being. Right now, the best option is a fixed income of five percent. Put money aside for the times when the market really starts to bounce back.
45% of Americans do not invest in the stock market because of lack of guidance. Every year you don't invest, you are falling behind. I’m hitting numbers in the stock market I used to dream of… Going from $50k to $600k in my portfolio is surreal all thanks to insights from my financial advisor.
Finding financial advisors like Rebecca Nassar Dunne who can assist you shape your portfolio would be a very creative option. There will be difficult times ahead, and prudent personal money management will be essential to navigating them.
I greatly appreciate it. I'm fortunate to have come upon your message because investing greatly fascinates me. I'll look her up and send her a message. You've truly motivated me. Thanks.
Question: should I take advantage of my RRSP top up at my younger age during 43% income bracket years and then look into this strategy since TFSA room is wide open?
@@marcin7570 Starting earlier is indeed advantageous, allowing for more time to leverage the benefits of the TFSA Maximizer strategy. By optimizing your TFSA contributions early on, you can build substantial tax-free savings over time. Additionally, beginning earlier provides a longer runway to accumulate wealth in your TFSA, which can be particularly beneficial as you approach mandatory RRIF withdrawals at age 71.
@@precedenceprivatewealth2872 appreciate the response :) would you lean towards maximizing RRSP due to tax deferral with annual refund and then maximizing TFSA at higher tax bracket once RRSP maxed out?
Hey @marcin7570, Glad to hear you appreciate the response! When it comes to maximizing your RRSP versus TFSA contributions, it often depends on your individual financial situation and goals. Maximizing your RRSP contributions can indeed offer tax deferral benefits, potentially resulting in an annual tax refund that you can then reinvest. Once your RRSP is maxed out, focusing on your TFSA can be advantageous, especially if you're in a higher tax bracket. TFSA contributions grow tax-free and withdrawals are tax-free as well, which can be beneficial in retirement or for other financial goals. Ultimately, it's worth considering factors like your current tax bracket, expected future tax bracket, investment timeline, and specific financial objectives. Consulting with a financial advisor can help tailor a strategy that aligns best with your circumstances. Cheers!
@@precedenceprivatewealth2872 thank you so much 😊 I’ll will definitely reach out in the future for assistance. Loving the videos 🙌 thank you 🙏 for sharing your knowledge
Great video!! I'm not there yet but so great to know there are legal CRA compliant strategies that allow regular Canadians to capitalize on their hard earned money in retirement!! Great explanation!
Just remember. Nobody is going to set all this up for you for free. It's not a given that "regular" canadians have the wealth to make this strategy profitable. I guess it depends on how you define "regular" though. I'm sure it's profitable for the tax accountants for sure.
@Precedence Private Wealth : This is very interesting. Thanks for sharing publicly. One thing I couldn't understand is if the money from the RRSP and the TFSA are invested into a mortgage, then how can money be taken out of the RRSP via a RIF in order to make mortgage payments? I know I must be missing something, but I can't figure it out. Thanks.
I was wondering the same thing. I think this is roughly how it is done: Using similar numbers to the ones in the video, you'll pay to your RRSP the following amount of interest 3%*500k=15k, and you'll pay your TSFA 10%*100k=10k of interest. Now that you've paid 25k of tax deductible interest, you can RIF that 15k and put it in your TFSA.
This is the type of transaction that would attract GAAR. For those who don’t know what GAAR, it basically allows the CRA to deny the benefits of a transaction where the rules are used to avoid tax in a manner in which the rules were not meant to be used. Paying interest to yourself actually involves no risk in which case the interest paid on the TFSA may not be reasonable. If the CRA seems the interest to be unreasonable, it would be denied. Furthermore, for those that rely on RRSP to fund their retirement, the tax rate is rarely over 40%. Unless the CRA has actually issued an interpretation bulletin on this type of transaction or it has been tested in court, this would considered to be what is considered risky or “aggressive” strategy
Thanks for watching and for your comments Robert. There have been several important updates to this strategy that tackle many of the underlying concerns you have put forth. The more updated version of this video can be viewed at www.precedencewealth.com. This will more accurately illustrate the steps taken within the updated structure to satisfy CRA’s requirements. If you have further questions after viewing this video please reach out to us. We’d be happy to discuss further with you. Thanks again for watching our content.
Also, please remember that if an individual has only a modest RRSP then this type of strategy should not be prioritized. However, just because an individual is not in the highest tax bracket does it mean that they should not try to structure their financial affairs and assets in the most tax efficient way possible.
Really innovative way to reduce tax burden. It seems like a great plan for some I challenge your statement about having a 35-40% tax burden to remove 500k-$1m from an RRSP. I found you can drive it to 13.5% pretty easily. Here are the assumptions.. Retired at 65 with $1m in RRSP an maxed out TFSA. 1. defer OAS and CPP until 71 2. take max RRSP deductions starting at 65 to drive 13.5% ave tax rate 3. continue to max out TFSA contributions 4. Then when forced to RIF RRSP will be low enough to stay close to the target 13.5% tax rate 5. At 71 your CPP and OAS are 45% higher and indexed to inflation Using this approach you never hit OAS claw back. Over time the RRSP drives to zero while the TFSA never gets touched. Same outcome. Costs 13.5% tax but nothing complicated and does not depend on the government not shutting down these "loopholes"
Thanks for watching our content and for your feedback. I think the assumption you provided is missing the future growth rate within the RRSP. Even a family was to income split at age 65 for approximately $80K total income the growth wtihin the RRSP it will never allow them to reduce the value within the RRSP over time. Therefore, the only way to reduce it to zero is to make more substantial withdrawals which inevitably forces higher taxation. Also, it is assuming that clients are desiring that low of income from their savings up until age 65. So there is usually alot more to an analysis of whether this is suitable for a client or not. Age and oustanding balance are important factors, but there are other things to consider such as desired lifestyle, additional pension earnings, business assets, etc. that also play a role in this process. Also, although 13.5% is a low tax consequence in comparison, it still is not zero. 😉
@@precedenceprivatewealth2872 All reasonable assumptions and perspective. I actually factor all of it into the plan and admit that I am not typical case. What makes my situation unusual, is I am happy with zero risk investment(AAA bonds and GICs), and I am happy to live comfortably below my means. So my investment return only keeps pace with inflation. The last surviving member runs out of RRSP at 99 but leaves a ton of TFSA, property and fixed assets. So it does pay 13.5% tax which seems like a win after a life of 50%+, but I am happy with zero risk, and zero concerns about whether CRA is coming to get me.
The catch: $600,000 is now growing in a non registered account at 5% return, that means tax on $30,000 in the first year which would not have been taxed an RSP/TFSA, and this will be an annual reducing loss until the strategy is fully implemented. However, this was a very creative way to offset the RSP WD taxes. Also, other comments are right there are set up and Maintainance costs.
What the presenter said was that the gain in the taxable account is taxed differently. He said that bcz intrest earned inside the taxable account would be considered a “capital gain”, only half of it would be subject to taxation. Idk if that is correct, but that is what he said
You're earning capital gains and dividend income. Most Canadian companies' dividends are taxed at a better rate than regular income and RIF withdrawals. Capital gains also have a better tax rate.
The strategy is good...However the risk with this strategy is you have to sell your assets and then buy back in for the initial non-registered accounts.. Secondly when you move the money from the non-registered accounts you need to sell assets again to move the money back to the TFSA account. Then you need to purchase assets again if you're looking to invest and grow. My reservation on this strategy is the amount of selling and buying assets.. Something you need to consider in this strategy
Thank you for your comment Brandon. Your initial assessment of the cash flows required is inaccurate. The only forced transaction required within this strategy is the liquidation of RRSP assets to initially fund the strategy. However, this has since been adjusted as well and is no longer required. Therefore, currently no other assets are required to be sold. The non-registered assets are eligible to continue to grow without being disrupted as long as the client desires. Recall that the TFSA grows only by the interest earned on the private mortgage(s) in which it invests into. There is not a “transfer” or moving of assets from the non-registered to the TFSA whatsoever within this strategy’s sequence of cash flows. Hopefully that help clarify. Should you have any further questions, feel free to send another comment/message or reach out to us directly and we can discuss more about these specific details. info@precedencewealth.com
A couple of questions: a) How can you have a RIFF if you are supposed to sell all CASH and re-invest in a Non-REG account? This implies the RRSP and TFSA are left empty, and b) Can you transfer in-kind to avoid DSC charges?
Hi Rosa Delgado, thank you for watching our video. 🙏🏻 Great question! The special purpose mortgage vehicle is actually held inside your RSP and TFSA. The proceeds of the resulting mortgages are then invested into a non-registered investment account. With respect to DSC charges...unfortunately they cannot be held inside the RSP as they need to be sold in order to be used in the strategy. However, we have helped many clients manage their investments and sell them over time as they become free or matured. That’s really unfortunate though...any advisor that buys DSC’d investments for their clients should be ashamed of themselves. In 2018 it is complete unacceptable...but we are aware that it still often happens. 🙄
@@toddmclay5029Hi, I'm reading this 5 years after., I'm confused on how do you pull out a RIF when the only thing sitting in the RSP account is the mortgage? I'm assuming all the cash went into the Taxable investment account - or you just pull out the interest, after the mortgage payment is deposited.
Thanks Adam , Your videos in my opinion are the best source of answers for soon to be retiring curious Canadians outside the financial advisors office .
I have done all these strategies. The problem is getting the CMHC approval, AND getting the institution to declare the mortgage as approved / allowable JR
Liked the presentation - very smooth. I don't think there is anything wrong, however, there are some risks not identified (re-investment risk of the mortgage funds borrowed & potential under performance within one's RRSP) and additional overhead/mgmt costs with this strategy. Someone with a little knowledge can replicate this in a simpler way with less risk. If someone takes out a mortgage from a bank paying 3% interest on their home to invest and earn 6% growth then they are ahead of the game since 6%>3%. The interest deductibility exists to offset the tax liability arising from the withdrawal of $10,000 from your RRSP. You can contribute the $10,000 to your TFSA, too. This result is the same as your strategy. This is simpler and better than your strategy because 1) you are investing the funds in your RRSP to earn 6% (on the same investments as your non-registered account) instead of a mortgage that only pays 3%; 2) you avoid the high management costs of the mortgage administration (min $2-3k initial + $1k/yr) and professional advice (your 1.5% fee). Keeping the strategy simple allows one to focus on each element. If you are still working and have a deduction available from the interest on the mortgage, why not just use the deduction to offset part of your regular income from your job? Why not leave the funds in your RRSP until a time when you retire and have significantly less income (and thus less income tax)? [Rhetorical questions]. Despite the fact this strategy is sub-optimal, I still appreciate the video as it brings greater visibility to the benefits of learning to invest and tax planning. Thxs!
Thanks for watching and providing your feedback. Unfortunately your calculations are not accurate. This is not the same as a basic leverage strategy and therefore shouldn’t be compared to such. Leverage involves additional 3rd party investment risk. It is very effective to use leverage appropriately but this strategy does not do that.
Very interesting video. I appreciate your confidence. Though I have a very hard time accepting there is no risk for this strategy from the CRA. Can't they apply GAAR or something and call this tax avoidance in spirit? Quacks like a duck .....
I’m with you, pongster. This may be legal but it shouldn’t be. I like living in Canada and don’t mind paying my share of taxes- we get a lot from them: health care education, roads, police, etc. The point of RSPs is to defer taxes, to avoid them. This scheme may be legal but it stinks.
I may have to close my eye and bit my teeth on paying tax........, It must be financial obligation somewhere that we have to pay..., I thought manage your asset and retire early to enjoy the hard earning money.Thank you for the information.
These frequent tax code changes are disrupting my long-term investment strategies. Are there ways to structure my investments to be more resilient to potential tax code modifications?
I honestly think America needs a completely restructure of their political system. It is just not working. Trump and Biden being elected out of 300 million people to run the country is evidence for that too.
This is why the US should elect more progressive politicians, who know how to manage budgets and give us (yes, pur country's initials literally spell out that pronoun) much better tax credits in return for better public education and better public healthcare. but since these are nonexistent, my husband and I are being guided to finance our retirement and healthcare through a diversified investment portfolio
@@BernardFrederick-tk7un How can I participate in this? I sincerely aspire to establish a secure financial future and am eager to participate. Who is the driving force behind your success?
How can I participate in this? I sincerely aspire to establish a secure financial future and am eager to participate. Who is the driving force behind your success?
Feb 2021- Once RRSP funds are converted to cash and moved to a taxable investment account the taxpayer receives a Tax slip for the withdrawal. In effect what your proposal entails is making your house a registered asset that in reality sits inside your RRSP account. I would like to know total costs of tour strategy and rulings by CRA in the past 2-3 years.
Agreed on the fact that every penny that leaves RRSP account is withdrawal and WILL be added to your gross income for the year. BTW, RRSP withdrawals can be cash or in-kind, i.e., you don't have to sell your stock/bond/mutual fund in order to withdraw.
You don’t withdrawal your assets from your RRSP... you simply invest your registered assets into a special purpose mortgage investment that I turn lends you the money back to create the tax deductible interest. Hope that helps clear things up!
I heard you mentioned about TFSA growth is tax deferred but also mentioned that upon withdrawal it is tax free. So just to clarify, there is no tax deferral in TFSA growth because it is tax free.
Hi Neil, Thanks for your question. Here is a brief overview that may help.. # 1. Take the assets in your RRSP & TFSA and sell them to CASH, but they are still being held inside these structures respectively. #2 Now we Invest the CASH from inside your RRSP & TFSA into a Special Purpose Mortgage(MIC) Mortgage Investment Corp. #3. After we invest your RRSP & TFSA CASH into the MIC, The actual mortgage proceeds are then re-lent to you and invested into NON-REGISTERED INVESTMENTS. #4. Now we begin to withdraw the money out of your RIF which is taxable income. #5. We then make your mortgage payments to the MIC. #6. You will be paid a 3% distribution from your RRSP and a 15% distribution from your TFSA. - The interest on these MIC payments is tax-deductible - The exact amount that is pulled out of your RRSP that is normally taxable is completely offset. For more information, and to speak with our lead advisor Todd McLay send me an email at info@precedencewealth.com
@@precedenceprivatewealth2872 Thanks for the reply but i didn't really get it. I'm not sure why RIF is mentioned. Do you to convert the RRSP to RIF? Is the mortgage of the house will be from the MIC. What proceeds from MIC?
@@NielTenebro Yes you convert the RRSP to a RRIF. We then make your mortgage payments to the MIC. You will be paid a 3% distribution from your RRSP and a 15% distribution from your TFSA. - The interest on these MIC payments is tax-deductible - The exact amount that is pulled out of your RRSP that is normally taxable is completely offset. Niel, if you would like to have the concept explained, please contact us at info@precedencwealth.com and I can set up a call.
We had borrowed RRSP not because we need tax shield but due to insufficient money even for initial 20%. We had to pay back same amount with interest to government.
I don't understand the part where the RSP funds are transferred to a taxable investment account. Doesn't that trigger massive taxes because the funds are being withdrawn from the RSP?
They are offset by the tax deductible interest. Therefore eliminating the tax on the RRSP withdrawal. Hopefully that helps clarify. If not, reach out to us. Happy to walk through your questions together.
Thanks so much Tim! We really appreciate you sharing this strategy. It’s important to note that your house does not have to be completely free and clear. You just have to ensure there is at least $250-300K in available equity. Hope that is helpful.
I paid off my 356,000 dollar cottage at 44. Bought it at 29 but I got a good deal & fixed it up with another 20,000. But I took amortization / mortgage for 15 yrs.
You are borrowing from your own RRSP and TFSA. How can it be non arm length mortgage? Do you go through MI Corporation. What will be the feel like to set up say a $1000000 in first and $500000 in second mortgage? How CRA views it?
Does anyone here watched Dave Ramsey show? I was wondering why you lending yourself with an interest rate of 3% plus up to 15% to a 2nd mortgage If you can pay cash. I think you are paying more with the interests rather than being taxed when you withdraw your money from rrsp. In addition, your money in the tfsa is already safe for being taxable, why you need to use it to get 6-15% interest rate of mortgage plus taxable if you you put or transfer to a non reg taxable account. If I will count the numbers, I'd rather be taxed than paying up to 18% in total for a mortgage with my own money.
Hi Connie Deja, Thank you for watching our video and for your comments. Here is a quick outline of why the strategy is set up the way it is. As discussed in the video, the benefit to having a personal mortgage inside your RSP and TFSA is that you are able to pay yourself interest. The interest itself is funded by a withdrawal from your RSP. And because the interest itself is tax deductible it totally negates the tax payable from the RSP withdrawals. You do not pay interest to anyone but yourself through this strategy. Therefore the 3% and 15% (not 18%) are actually paid directly to you personally. The end result is a tax free transfer to your TFSA overtime. Also, recall that this is not a leveraged debt situation. Because you own the mortgage on your RSP and TFSA personally, your net balance sheet does not change before or after engaging in this strategy. It is merely the taxation of the assets themselves that gets affected. Hopefully this helps to clarify. Please be sure to let us know if you have any other questions!!!
Oh I get it now. Thank you so much for this information. I think it will help to a lot of people in the future. 😍 I will take a picture of this comment of yours to make sure I will not forget if I'm going to use this strategy later on. Lol
correct me if i am wrong! what you're saying is you to have 1 piece of property Mortgage free. there fore it don't matter if you have 1, 2 or more pieces of property that are still mortgaged ?
Hi Jim, Thanks for watching! Glad you found the video valuable to you. Great question!!! It depends on a number of factors including the value of the properties available to be used within the strategy. I would suggest reaching out to our team at info@precedencewealth.com and we can provide a personalized illustration based on your own specific situation. Thanks again for your time and attention!
Correct! Must be held in a non-registered account. money borrow to invest and it clearly 24:16 states interest paid on money borrowed 24:19 to invest is tax deductible assets must 24:23 be held in a non registered taxable 24:25 account they must be available for any 24:28 asset class that meets the income and 24:31 profit test that would include stocks 24:35 bonds mutual funds businesses etc it has 24:39
@@precedenceprivatewealth2872 Borrowing money to invest always has some level of risk. Sure you can write-off interest. You must have enough cash flow to pay off principal.
What would the upfront and ongoing hardcosts be for this strategy? CMHC costs - initial, monthly? Cost of preparing all of the associated paperwork/documentation, and management fees? I thought CMHC was there to just insure/gaurantee mortgages for first-time home buyes. This is why it is good to have a good financial advisor and accountant. Thanks for the video.
Hi Andre & Beth, The main difference between the original TFSA video and the most recent one is that we now use the Mortgage Investment Corp instead of a direct mortgage and the strategy evolved to the point where there are no longer any CMHC fees required for the set-up.
@@precedenceprivatewealth2872 I am still struggling to understand the exact way this should works. Would like to see a some sort of a spreadsheet with the details showing the RRSP/TFSA, the mortgage, the taxes, the deductions ... With the interest rates now substantially higher, what rates that could be payable on back to the RRSP / TSFA. thanks
A very interesting video, but the strategy is very costly for those who practice it from the information that I gathered by reading comments and the responses from advisers. Let’s say CRA can not do anything against it, and after ten years all your RRSP assets are smoothly converted into TFSA without any tax, you will end up paying a total fee of 24.9% of your whole portfolio that I assume is the total amount of your RRSP and TSFA in cash before investing in MIC. I got 24.9% because responding to manage fee cost questions in some comments they are saying it is 2.49% annually for the portfolio , remember you will now pay fees for your TFSA component as well which is tax free and should not have cost extra for you. And considering this strategy’s complexity and purpose it is very risky too, CRA really be fine with this or will fine this? What if your taxable investment is in the stock and the stock market crashes and keeps long depressed, and you need withdraw money to pay your mortgage which may have much more value than your investment? Is it really worth to take risks at the said costs?
Hi Terry, thanks for taking a look at the video. The total cost of the strategy is 1.45% Annually and includes: 1. Creating of a full comprehensive Financial Plan 2. Portfolio Management 3. Estate Planning 4. Accounting & Tax Advisory There are no additional professional fees involved with managing the special purpose mortgage within the TFSA Maximizer Strategy. This makes the RRIF Meltdown Strategy much more cost-efficient in the early stages up to and within retirement up to age 71. The RRSP continues to be invested, whereas in the TFSA Maximizer Strategy it is placed inside these special-purpose mortgages and receives no additional investment return. Overall, the math will always show that it makes far more sense to take a two-step approach. The first step is the RRIF Meltdown and the second step is the TFSA Maximizer....but the latter certainly does not need to be activated until age 71.www.precedencewealth.com/fees
It sounds like a scam. Let use your 25% management fee as an example. I will be paying 25% of my entire portfolio (RRSP+TFSA) vs 33% for my RRSP from withdrawal. It is a wash at best. Now, I am facing all the uncertainty and risk with this private wealth management firm. It is a non start for me.
Great, informative video that is specific to Canadians. Thank you. I do have a mortgage so this is not as applicable to me but I was wondering how to transfer my RRSPs to a TFSA without incurring any penalties or fees if possible.
@precedenceprivatewealth2872 Hey there. Would you kindly respond to @chrism7199 comment above? I notices you didn't and his response seemed to have some reasonable financial implications
Here is what you need to qualify. The main restriction is that this approach is only available to “accredited investors,” those with $1 million of investable assets, or $200,000 earned personal income, or $300,000 earned family income.
One thing that most Canadians overlook is that pension values also can be used to qualify. For example a pension commuted value of $500k along with $500k of other investibke assets would help an individual qualify that otherwise would not without factoring in the pension assets.
This is very interesting concept , reminds me bit of the " Smith " system that recommended using borrowing to make your principal residence mortgage interest tax deductible.
HI Sumyunguy, Thanks for your question. Because we are using realistic prescribed rates and you are satisfying the connected person rule, the borrowing to invest provisions and a reasonable profit test, we are following the letter of the law. Yes, the CRA is going to review it, but the laws are clear.
Well, my friend, when the shit hit the fan, you're the only one who gets it. Because you're the one who submit and sign your tax return. I guess the big question is This tragedy foul proof? It will be nice PRECEDENCE can give us a straight forward answer since the inception of their strategy, does it pass CRA review/audit? a YES will be nice, if not, whats the basis of adjustment, if any.... my gust feel is this strategy wont pass the GAAR General anti avoidance rule, Section 245 of the Income tax act.
i am reading this four years after it was first posted. interesting idea but i have a few questions: 1. has CRA taken a position on this or studied it? i.e. is it still considered ok? 2. do you have any comprehensive numbers showing how this actually plays out over time? i.e. using the $500K and $100K figures (and assuming current mortgage rates, etc.) what are the various costs per year and how does the value of the RSP, TFSA and non-registered accounts change annually over the life of the mortgage? in other words, a spreadsheet showing all the monies paid out annually, their flows through the accounts, and how the accounts change in value annually for the life of the mortgage. 3. with current house prices so high, does this strategy still apply or does it need to be tweaked? or is it in fact more beneficial now? if the house price is, say, $1.2M but you just have $600K available for the mortgage, wouldn't you need to borrow the rest from another institution? thanks, rob
Thanks for watching RJW. 1. This is what the CRA is going to see. You’re going to have to prove the interest deductions, and this is a slam dunk for us to prove. 2. A pre-qualified investment inside an RRSP 3. A Pre-qualified investment inside a TFSA that is reasonable 4. A RIF withdrawal 5. Tax-Deductible Interest We have a game plan for everyone who enters into this strategy. Why would the CRA think that you are creating an unfair advantage? 1. You are paying tax on your RRIF 2. There will be a little bit of a tax drag that you will get back at the end of the year 3. There will be a tax on the non-registered account 4. And it’s not a switch, it takes 10 - 15 years in some cases. 5. It’s the restructuring of your affairs Now if the Government pivots and changes Syndicated Mortgage Rules on what would qualify inside a TFSA, then we will make adjustments.
This is very interesting, but I have to know a couple things. 1. This is purely a cash transfer scenario there is no payout to yourself during the process, correct? 2. Upfront deposit? Must be less than 20% as per cmhc insurable mortgage. This cash comes from? My pocket? Tfsa? Or is it just the CMHC fee you pay? 3. Term length? At 56 and having to complete before age 71 is this depending on the size of transfer from TFSA to RRSP? It would seem to me there's some principle interest amount that would make that sweet spot work? 3. A certain portion remains in the RRSP at the end of this. Just pay the taxes and move on? Thank you for the insight. Although I'm only 38 It may be of interest for me to pay off my mortgage before retiring for this reason.
It would be best if you speak directly with Todd to discuss the strategy.
Here is a brief overview that may help..
# 1. Take the assets in your RRSP & TFSA and sell them to CASH, but they are still being held inside these structures respectively.
#2 Now we Invest the CASH from inside your RRSP & TFSA into a Special Purpose Mortgage(MIC) Mortgage Investment Corp.
Then you borrow from another MIC corp at those prescribed rates and that’s what creates the tax-deductible interest.
#3. After we invest your RRSP & TFSA CASH into the MIC, The actual mortgage proceeds are then re-lent to you and invested into NON-REGISTERED INVESTMENTS.
#4. Now we begin to withdraw the money out of your RIF which is taxable income.
#5. We then make your mortgage payments to the MIC.
#6. You will be paid a 3% distribution from your RRSP and a 15% distribution from your TFSA. - The interest on these MIC payments is tax-deductible - The exact amount that is pulled out of your RRSP that is normally taxable is completely offset.
For more information, and to speak with our lead advisor Todd McLay send me an email at info@precedencewealth.com
I would say the major flaw in this strategy is that it is subject to GAAR. The interest rate charged by the TFSA "must reflect normal commercial practice". While it's true that second mortgages would generally bear higher interest rates, it is not true that a second mortgage held by the same person would bear a higher interest rate. Consider the following scenario: you have a first mortgage with RBC and then obtain a second mortgage from RBC. Would you expect them to charge you a higher rate on the second? There is no difference for the RBC between holding the entire amount in a first mortgage or a part in a first and a part in a second. The reason a second mortgage has a higher rate is because the party in second bears greater risk. If the same party is in first and second, there is no additional risk and the rate should be the same. I would be surprised if CRA had not already challenged the 15% rate on the second mortgage.
Hi Marc, Thanks for your interest. The mortgages within the TFSA Maximizer Strategy are set up as open variable interest-only loans. Therefore, the 3% position mortgage within the RRSP is far less than the market, so most definitely with the reason for the strategy. The 15% position, although it may seem high at first glance, is right in line with similar loans of similar security and liquidity positions. Because again it is interest only and under an open mortgage format it can easily justify a higher rate than most normal 2nd position mortgages. Also, these mortgages are usually within the upper range of the higher ratio mortgages, again justifying its higher rate. Put more simply, if you were to lend your own money on a 2nd position structure, that was interest only and a fully open mortgage you would easily demand at least 15%. 😊
@@precedenceprivatewealth2872 It really doesn't matter what the terms are in my opinion. The rate charged has to reflect the risk inherent in the loan. As is stated in the video, it would be stupid for someone to default on their own mortgage. The risk of the loan is very low, no matter what the terms or ranking are.
Something doesn't make sense. If we take out a $500K mortgage with a 25 year amortization at 3%, the monthly payments have to be $2366.23. The first year of payment would total about $13,913 in interest. However, if that $500K comes out of your RRSP or RRIF, then you'll have to pay an income tax of $233,335. The $13,913 interest the first year of your mortgage is hardly enough to cancel out the tax. Furthermore, twelve payments of $2366.23 is way over the $6000 TFSA contribution limit unless you have lots of contribution room. The RRSP may be set up inside the mortgage structure, but at some part of the process, funds will have to get into the non-registered taxable account. That's where the income tax takes effect and it's too big to be cancelled out by the mortgage interest.
George Emil thank you for watching our video. I would suggest visiting our website to view a more recent video as well as the frequently asked question section. Once you shave a chance to view, please reach out again with your questions. We’d be happy to address them. However, I believe the majority should be answers at www.precedencewealth.com
Would it be that the “TFSA MTG Payment” includes the interest rate (which is your rate of return on the Self-Directed TFSA MTG) so therefore that return is not a Contribution? (But rather the growth on the TFSA capital?)
I found the following on your website: "And, for those concerned about how CRA will view this strategy, well, every Mortgage Investment Corporation created within an RRSP, RRIF or pension account must be registered with them, guaranteeing their approval before implementation. So, no worries on that front. The main restriction is that this approach is only available to “accredited investors,” those with $1 million of investable assets, or $200,000 earned personal income, or $300,000 earned family income." So it looks like MOST Canadians cannot adopt this strategy. The median family income in Canada is $105K.
BTW. What counts as the $1 million investable assets? RRSP? LIRA? TSFA? RESP? 401K? IRA? Roth-IRA? Registered Stock? Home Equity? Is this joint or individual?
According to other websites, those who can do this strategy, generally don't benefit enough to make it worth their while. And those who would benefit, do not qualify. Normally the mortgage insurance is about 0.5% on the first 65% of the value of your come. And 2.75% on the value after that. So you only want to mortgage the first 65% to participate in this strategy. And given the individual maximum of $75,500 that you can add to an TSFA, unless you have been maximizing your TSFA and using at an investment vehicle, you probably don't have much more than than in a TSFA. Crunching the numbers a 3:1 ration seems about optimal. So that means you'll probably want to work with a $300K mortgage to start with. A couple might do up to a $600K mortgage. As an American though, I would avoid that. Because it would requiring putting my name on the deed of the home, which means it would be subject to capital gains tax upon sale. And since one would only want to do this on 65% the value of there home, they would need a house worth $1 million dollars. Converting $300K to being tax free to pay capital gains on a home that might be worth $2 million when you sell will probably not be a break even deal. However, there are probably ways this strategy could help me, I just have not figured them out yet.
@@billc.riemers3245 HI Bill, There is a updated video that no longer has CMHC Involved. Here is a brief overview that may help.. # 1. Take the assets in your RRSP & TFSA and sell them to CASH, but they are still being held inside these structures respectively. #2 Now we Invest the CASH from inside your RRSP & TFSA into a Special Purpose Mortgage(MIC) Mortgage Investment Corp. #3. After we invest your RRSP & TFSA CASH into the MIC, The actual mortgage proceeds are then re-lent to you and invested into NON-REGISTERED INVESTMENTS. #4. Now we begin to withdraw the money out of your RIF which is taxable income. #5. We then make your mortgage payments to the MIC. #6. You will be paid a 3% distribution from your RRSP and a 15% distribution from your TFSA. - The interest on these MIC payments is tax-deductible - The exact amount that is pulled out of your RRSP that is normally taxable is completely offset. For more information, and to speak with our lead advisor Todd McLay send me an email at info@precedencewealth.com
@@precedenceprivatewealth2872 Thanks. As a follow-up. I am a dual US Canadian citizen. My wife is Canadian. All our income is in my name. My wife owns are home. I am not on the title so that we won't owe the US capital gains tax should we sell our home. Will this strategy still work? Or would I have to add my name to the title an incur an obligation to pay capital gains tax later?
@@billc.riemers3245 HI Bill, If you have time for a quick call with our lead advisor Todd McLay, I can have all your questions answered, and possibly do an actual illustration for you with your exact numbers. info@precedencewealth.com
@@precedenceprivatewealth2872We are former residents of the US living in Canada. We have ROTH and Traditional IRA's but no RRSPs or TFSA's. Would we be eligible to benefit from this process?
Hi Carp Spudpicker, thanks for reaching out. We don’t have to manage the investments perse but we do then charge a 1-1.5% management / financial planning fee to implement this strategy. Therefore, you may as well have us manage your assets for you. Same exact cost. Our Risk Parity Asset Allocation portfolio provided a 10 year return of over 11% (before fees) with our biggest annual loss being -1.8% in 2018. But our clients are welcome to manage their own funds if they choose.
Let me see if I understand this. If you convert all your investments to cash then they are no longer growing in value correct? You are foregoing today's gains in order to get it back later when the rrsp cash transferred to the tfsa is tax-free. So a tfsa retirement dollar is worth one dollar but an rrsp retirement dollar is only worth let's say 75 cents because the government takes 25. You would have to withdraw about $1.34 from rrsp money to have a dollar.
larky368 great question Larky. Thank you for watching our content and for reaching out with your thoughts. I would suggest watching our more recent video on this strategy. It helps illustrate the flow of funds a little better than this older version. Simply visit our page and it pops up automatically. You followed along well however, the growth part you are mistaken on. Recall that the proceeds of the mortgages are invested. This can be inverses the exact same or differently than what your RRSP and TFSA assets were prior to entering into this strategy. Hope that helps clarify. Be sure to let us know if you have any other questions!
When would you want to start this strategy? Only after retirement when your rrsp is no longer growing? Or would you want to start to melt down the rrsp early while you are still working? With all the costs for setting up mortgages and corporations (legal fees, accountants fees, advisor fees, consulting fees etc) where is the break point to make this worthwhile? Or to ask that another way, how large of an rrsp do you need to make this worthwhile? Finally, if your partner has a pension that has limited the size of their rrsp, can you also combine their smaller rrsp with your own to melt them both down in one mortgage or do you need to set it up as an additional mortgage?
Hi Jordan, Great questions! If you'd like, I can email you our fee structure, which might answer some of your questions. If you're interested, a quick call with our lead advisor, Todd McLay, can address the rest. You can reach us at info@precedencewealth.com. Best regards,
Sounds like a good strategy, I see lots of upfront cost - to set up/combine and sell off RRSPs. Any difference if RRSPs are converted to RIFs already? When selling RRSP isnt there Automatic withholding taxes? Cant quite understand that piece of the equation.
I like it, it’s creative, I’m just only questioning about the interest rates. Obviously the strategy hinges on the difference in interest rates between first and second mortgage position. In your example you used 3% and 15%. What is the rationale behind choosing the interest rates? I mean, does it need to be CRA prescribed interest rates at the time of the contract (similar to a spousal loan, for example)? Or is that something that is handled on the mortgage company side of things? Would setting the interest rates for first and second position be described in or dictated by the Income Tax Act, or elsewhere? And, is interest on personal debt (I.e. yourself) for investing purposes deductible? Not sure if ITA has anything about non arms-length debt and deductibility. P.S. I CALLED the biggest actual ‘risk’ being CRA Audit from the JUMP! Ha, go figure.
When implementing an RRSP meltdown strategy, the selection of interest rates is indeed a critical aspect. The rationale behind choosing the interest rates, such as 3% and 15% in the example, is based on maximizing the spread between borrowing costs and investment returns. Regarding the specific interest rates used, they don't necessarily need to align with CRA-prescribed rates, as with spousal loans. Instead, they are typically determined by the mortgage company based on market conditions and individual financial profiles. While the Income Tax Act doesn't explicitly dictate these rates, it does provide guidelines on the deductibility of interest on personal debt for investing purposes. As for deductibility, the ITA does address non-arm's length debt and its deductibility. However, it's essential to consult with a tax advisor to ensure compliance and understand any potential risks, such as CRA audits. Your foresight in identifying CRA audits as a potential risk underscores the importance of thorough planning and compliance within RRSP meltdown strategies. It's crucial to approach this strategy with a comprehensive understanding of both the financial and regulatory aspects involved.
@@precedenceprivatewealth2872 I would also like to know if this passed a CRA audit, as I see its on the CRA website under their TFSA maximizer scheme and the Advantage Tax applies.
@@user-mv9cz4iz9y Because we are using realistic prescribed rates and you are satisfying the connected person rule, borrowing to invest provisions and a reasonable profit test, we are following the letter of the law. Yes, the CRA is going to review it, but the laws are clear. This is what the CRA is going to see: Interest Deductions: You’re going to have to prove the interest deductions, and this is a slam dunk for us to prove. A pre-qualified investment inside the RRSP A Pre-qualified investment inside a TFSA that is reasonable A RRIF withdrawal Tax-Deductible Interest Why would the CRA think that you are creating an unfair advantage? You are paying tax on your RRIF There will be a little bit of a tax drag that you will get back at the end of the year. There will be tax on the non-registered account. It’s not a switch, it takes 10 - 15 years in some cases It’s the restructuring of your affairs
@@user-mv9cz4iz9y Because we are using realistic prescribed rates and you are satisfying the connected person rule, borrowing to invest provisions and a reasonable profit test, we are following the letter of the law. Yes, the CRA is going to review it, but the laws are clear. This is what the CRA is going to see: Interest Deductions: You’re going to have to prove the interest deductions, and this is a slam dunk for us to prove. A pre-qualified investment inside the RRSP A Pre-qualified investment inside a TFSA that is reasonable A RRIF withdrawal Tax-Deductible Interest Why would the CRA think that you are creating an unfair advantage? You are paying tax on your RRIF There will be a little bit of a tax drag that you will get back at the end of the year. There will be tax on the non-registered account. It’s not a switch, it takes 10 - 15 years in some cases It’s the restructuring of your affairs
You still own the property, that doesn’t change, once you put the mortgage on, that just pulls out all the equity in the property and turns it into cash, that you reinvest
If I understand the point in the comments that you must be an accredited investor in Canada to use this strategy that means you must meet one of these criteria; 1. Have net worth of 5 million dollars or 2. Make 200 K for basically three consecutive years or be a certified investment professional. That's a fairly exclusive club is it not?
Completely makes sense except for the part about the MIC...Mics cannot be owned 100% by one person (at most it is 25% I believe?) So are all your clients using one common MIC that we have our respective shares in to make this strategy work? Would love your feed back on this. Thank you for the video very well done.
Is this a legal manoeuvre that an average joe can pull off without alarming the tax man or is this reserved for lawyers with a business degree overseeing large scale portfolios for stockholders in a firm?
Hi Coltukkor, thanks for watching. You have to be extremely detailed with the TFSA Maximizer Strategy. The Government is likely going to change Syndicated Mortgages, that space is running wild, but until something changes, we’re going to continue to do what we can do. Because we are using realistic prescribed rates and you are satisfying the connected person rule, the borrowing to invest provisions and a reasonable profit test, we are following the letter of the law. Yes, the CRA is going to review it, but the laws are clear. 1. This is what the CRA is going to see. You’re going to have to prove the interest deductions, and this is a slam dunk for us to prove. 2. A pre-qualified investment inside an RRSP 3. A Pre-qualified investment inside a TFSA that is reasonable 4. A RIF withdrawal 5. Tax-Deductible Interest We have a game plan for everyone who enters into this strategy. Why would the CRA think that you are creating an unfair advantage? 1. You are paying tax on your RRIF 2. There will be a little bit of a tax drag that you will get back at the end of the year 3. There will be a tax on the non-registered account 4. And it’s not a switch, it takes 10 - 15 years in some cases. 5. It’s the restructuring of your affairs Now if the Government pivots and changes Syndicated Mortgage Rules on what would qualify inside a TFSA, then we will make adjustments.
I'm with you up until about 17 min. I don't understand where the borrowing to purchase income producing invesments actually takes place. I realize it is critical for not paying the tax but can't see when it actually happens.
Thanks for watching Stratt Gatt. It may be best to have a quick chat about the details. Please email us at service@precedencewealth.com. We can set up a time for a conversation to answer your question and clarify for you. We’re always happy to help! 😊
Hi William, Thank you very much for watching and taking the time to write to us. Because we are using realistic prescribed rates and you are satisfying the connected person rule, the borrowing to invest provisions and a reasonable profit test, we are following the letter of the law. Yes, the CRA is going to review it, but the laws are clear.
This video is 5 years old. He needs to update his numbers BIG TIME. How does the extreme rise in home prices and interest rates factor into his theory of investments vs mortgage? Also a yong couple would likely have a Reg'd Home Ownership Plan to buy a home rather than an RRSP. How does that factor into his theory? Does it only work with a TFSA and an existing mortgage?
Hi Gail, thanks for the questions. Of course, anyone who reached out directly to us and had us run an illustration would use current rates. The strategy isn't structured for young couples starting out, it's primarily for people who have $250,000 or more in their RRSP. Each circumstance is unique and all of our illustrations would factor in little to no TFSAs or someone who has maxed them out.
Certainly, we are still currently utilizing this strategy. If you would like more information, feel free to reach out to us at info@precedencewealth.com.
Thanks for the comment. Canadians have every right to use the full scope of the Canadian tax code to maximize their taxable position to their benefit. That is why it is crucial to work with a licensed and qualified tax professional in order to ensure your compliance with CRA. We’re always happy to discuss further should you have any additional questions.
Hi Stefan A, I can send you an email that outlines the strategy with regard to The Canada Revenue Agency. One of the services we provide is to do tax preparation and filing for our clients. Over the last 10 years, we know what the CRA is going to look for and at the click of a button, we can send off all the supporting documents. Send me an email at info@precedencewealth.com and I can send you the overview.
Yes, you and your wife can combine your efforts for your TFSAs. While each of you has an individual TFSA with your own contribution limits, you can strategize together to maximize your investments and manage your overall financial planning. For detailed advice tailored to your specific situation, it’s best to consult with a financial planner. Feel free to reach out if you need personalized guidance!
Smith manoeuver didn't work out for me with market crash and dividend funds eating themselves around 2008 crash. The HELOC we set up remains very useful to us today. Very fancy manoevering by an advisor with moving around of large funds and the fancy manipulation is something I would never do on a large scale again.
How well would this strategy work when one of the couple is a US citizen? e.g. The interests earned in a tax free savings account are income that is still taxable income for the US. Which means total TSFA contribution room for the couple is $75,500 in 2021...
The video does not go into fees to set-up and manage this procedure. It also does not explain why you cannot take over a first mortgage from a financial institution.
Hi Robert, here is an updated version of the video that should explain things better. The main difference between the original TFSA video and the most recent one is that we now use the Mortgage Investment Corp instead of a direct mortgage and the strategy evolved to the point where there are no longer any CMHC fees required for the set-up. The total cost of the strategy is 2.45% Annually and includes: 1. Creating of a full comprehensive Financial Plan 2. Portfolio Management 3. Estate Planning 4. Accounting & Tax Advisory # 1. Take the assets in your RRSP & TFSA and sell them to CASH, but they are still being held inside these structures respectively. #2 Now we Invest the CASH from inside your RRSP & TFSA into a Special Purpose Mortgage(MIC) Mortgage Investment Corp. #3. After we invest your RRSP & TFSA CASH into the MIC, The actual mortgage proceeds are then re-lent to you and invested into NON-REGISTERED INVESTMENTS. #4. Now we begin to withdraw the money out of your RIF which is taxable income. #5. We then make your mortgage payments to the MIC. #6. You will be paid a 3% distribution from your RRSP and a 15% distribution from your TFSA. - The interest on these MIC payments is tax-deductible - The exact amount that is pulled out of your RRSP that is normally taxable is completely offset. if you would like to speak with our lead advisor Todd McLay directly, send me an email at info@precedencewealth.com Thanks for watching.
A little above me but I think I understand the plan. I will ask my investment broker about his thoughts . Do I have to take all my rrsp out for this or can I do 1/3 like a million . What if I have no room left in my TFSA .
Hi John, The minimum amount we would consider doing the strategy for would be $250,000. Depending on your age, we wouldn't even implement the Maximizer Strategy until age 71 and would do a traditional RRSP Meltdown process first. Here is the video on the RRSP Meltdown Strategy. ruclips.net/video/_sx2ZOflB3w/видео.html
You talked about if a person were to pass away having 500k in rrsp then that would be as income on that day, i heard that you can have your spouse as beneficiary and that if you pass away it becomes your spouses money instead, are you familiar with that?? Thanks for the video.
If you declare your spouse as beneficiary of your RRSP, it's automatically his/her RRSP when you die. If the last surviving spouse still has RRSP upon his/her own death then the entire RRSP would be deemed income in the year of death and the estate would have to pay any tax owed on the final income tax return.
Absolutely! Starting to plan and strategize well before you're required to take RIF withdrawals can be highly effective in optimizing your financial situation for retirement. By implementing proactive strategies, you can potentially maximize your savings, minimize tax implications, and ensure a comfortable retirement lifestyle. If you'd like a personalized illustration tailored to your specific numbers and circumstances, please feel free to email me at info@precedencewealth.com. I'd be happy to assist you further.
Interesting idea but has this strategy has ever survived a tax audit? Jurisprudence 101 in tax law is that a strategy whose sole purpose is to avoid paying tax is rejected.
Yes. This certainly is not avoidance as there is tax on the non-registered investments. No strategy is perfect. However, this sequence of cash flows allows Canadians to consistently create a more favourable outcome out of their RRSP. But it definitely is not a “switch” and something that happens over night. It takes several years to obtain a substantial benefit.
@@precedenceprivatewealth2872 let me congratulate you on an imaginative strategy. However, it seems to me the only goal of the strategy is to avoid paying tax on RRSP withdrawals - after all, it is the title of the video. I would love that but would it survive a CRA audit? I also wonder if CRA would accept you paying a 15% interest rate to your TFSA. Anyway, I thank you for a thought provoking video.
One think I don't get about this video, is if your investments are held in a taxable account, then all the earnings in that taxable account are taxable. Lets take some numbers. Suppose I have $300K in an RRSP and $100K in tax free saving account. So I borrow this $400K as a mortage. To keep it easy lets say $400K is the maximum amount of mortgage I qualify for. At the start of the first year I have RRSP=$300K,TFSA=$100K,Mortgage=($400K),Investment=$400K. Net estate post tax value: 250K (assuming 50% tax on RRSP) I collect 3% interest in the RRSP and 15% in the tax free savings account. First year I pay $15K back to the RRSP and $30K to the tax free savings account. That is $24K interest and $21K principle. My taxable investment account earns 6%, so $18K taxable income. Presumably I can return the $21K principle from my investment without jepordizing the tax exempt interest status. I can also $6K from my RRSP as income for a net $0K income. If I also pay that $18K income from my investment, that leaves me a net $0 tax, and net $0 cost. I can immediately borrow $21K of what I added to a tax savings account to to bring my mortgage back to $400K. At the end of the first year I have RRSP=$303K, TFSA=$115K,Mortgage=($400K),Investment=$400K. Net estate post tax value: $266.5K If I had just left the money the and tax free savings account each earning 6% I would have had: RRSP=$318K, TSFA=$106K: Net estate post tax: 265K Which means to break even on this the first year, the administrative costs, mortgage insurance, etc needs to be less than $1.5K. Is my analysis basically correct? If course as the years progress the RRSP will start to decrease because more and more of the mortgage is held by the TSFA. But the CRA will likely classify this as a scam if repeatedly the amount earned on the investment is less that the total interest paid. As it would indicate there was no reasonable expectation of taxable profit.
From what I read and understand, a second mortgage cannot be used in a non-arms length mortgage. How does the TFSA legally come into play in this case? I like the idea and have a lot of experience with RRSP 2nd mortgage lending. I also have a paid up house and vacation property with maxed out RRSP's and TFSA accounts. If I can better understand the CRA rule with respect to the 2nd mortgage (TFSA) part, I might give this a try.
Michael Power thanks for your question! Yes, the method has adjusted slightly since the initial release of this video. I would suggest watching our more recent video at www.precedencewealth.com We use special purpose mortgage investments to facilitate this strategy currently. It is much more efficient and cost effective then what is outlined in this video. Although the same strategy in general the specific nuances are far improved. Let us know if you have any questions after checking it out. Thanks so much again for the attention and consideration Michael.
wondering if you are still monitoring the chat on this video... :p you mentioned leveraging rrsp and tfsa to set up a pool to purchase the house (something along that line)... can you leverage a LIRA account instead of RRSP account? given the high interest rate these days.. this strategy may make sense, if i understand it correctly
Hi @zc2051 Certainly! It's great to see your interest in exploring different financial strategies. While leveraging RRSP and TFSA for a home purchase is a common approach, using a LIRA (Locked-In Retirement Account) is indeed a possibility, depending on your specific situation and goals. Leveraging a LIRA for a home purchase could make sense under certain conditions. LIRAs typically hold pension funds, and the rules governing them can vary by jurisdiction. Here are some considerations: Unlocking Restrictions: LIRAs often have restrictions on withdrawal until retirement age, but some jurisdictions allow unlocking under specific circumstances, such as purchasing a home. It's essential to understand the rules governing LIRAs in your region. Interest Rates: If you're considering this strategy due to high-interest rates, it's crucial to assess the overall cost of borrowing and compare it with other financing options. Ensure that leveraging the LIRA aligns with your long-term financial goals. Tax Implications: Withdrawals from LIRAs are generally subject to taxes. Understanding the tax implications of unlocking funds and any potential tax advantages is essential in making an informed decision. Professional Advice: Given the complexity of retirement accounts and the potential impact on your financial future, it's highly advisable to seek professional advice from a financial advisor or tax expert. They can provide personalized guidance based on your specific circumstances. In summary, leveraging a LIRA for a home purchase is a possibility, but it requires a careful evaluation of the rules, costs, and potential tax implications. Always consult with a financial professional to ensure that the strategy aligns with your overall financial plan and objectives.
I understand the strategy but if the value of the home securing the mortgage was far in excess of the amount of both mortgages combined, would charging such a high premium on the 2nd mortgage not be deemed as being unreasonable? If so, would that not be putting you at risk of being charged for tax avoidance?
Exactly. Market 2nd mortgage rates are currently 6.95% and first mortgage rate are 3.99% (a 3% difference). Only if you expect a extremely high level of default can you charge 15%, which is unlikely given that it is a secured loan and property values would need to drop so low that the equity gets wiped out. Notice how he has on the board a rate of 6% - 15% for the second mortgage but circles the 15% as though that is the realistic number. 6% is more like it if the risk level support it, otherwise you can call the first $1,000 the first mortgage and rest of the $500,000 a second mortgage, which would be a farce. Also, if this is a closed circle where the lender/borrower is the same person, CRA will likely challenge the "market rates" charged as it is not part of the mortgage market and assign it 0.5% for admin. costs only. In the meantime company walks away with 1% of your investment every year plus other fees.
@@PNWCoastGuy I didn’t rewatch the video but I believe he also suggested the loans would have to be CMHC insured, reducing the risk of default to virtually nil. I’m thinking this strategy would carry a very high risk of being rejected through audit.
I have a HELOC on my house and have used a portion of it for a down payment on a rental property. I'm going to sell the rental property within a few years. Can I use my own house to do this strategy when I'm using a portion of the HELOC for the rental? Thank you.
I'm struggling to find the real value or how this actually applies in a real life scenario. No matter how you slice it, you are only allowed to add 5.5K to a TFSA a year, so unless this is being applied over decades, how am I ultimately ever moving a huge sum of new money into my TFSA? Also, this really seems like a spinoff of a traditional meltdown, wouldn't it be simpler to just apply for a HELOC, and pay the interest with RSP proceeds and end up transferring assets that way?
Hi bmarando89, thanks for the comment. Recall that the money flowing into the TFSA is not a contribution, but rather an interest earned within the TFSA itself. Because the TFSA owns the Mortgage Investment Corporation shares (MIC) it earns the prescribed rate of interest (15% in the video example) which is earned tax-free. This is not a contribution but rather interest earned within the TFSA. Our clients within this strategy are still eligible and always advised, to continue to make maximum contributions to their TFSA each year. You can find more information on our website as well. www.precedencewealth.com/tfsa-maximizer
If this strategy becomes too popular the government will shut it down. Loopholes come snd go with the demands on the tax base, and those demands are going to the sky.
What if you do this to buy your primary residence, you can't claim the interest as a tax deduction can you? We're considering selling our home soon and renting for a few years before buying a retirement residence. In that time we'll top up our RRSP and TFSA accounts close to your example. We would then be in a position to buy a $750,000 house with 20% down and $600k mortgage. Is the interest on those mortgages tax deductible then or would we have to borrow against those assets to finance the house and deduct that tax?
# 1. Take the assets in your RRSP & TFSA and sell them to CASH, but they are still being held inside these structures respectively. #2 Now we Invest the CASH from inside your RRSP & TFSA into a Special Purpose Mortgage(MIC) Mortgage Investment Corp. #3. After we invest your RRSP & TFSA CASH into the MIC, The actual mortgage proceeds are then re-lent to you and invested into NON-REGISTERED INVESTMENTS. #4. Now we begin to withdraw the money out of your RIF which is taxable income. #5. We then make your mortgage payments to the MIC. #6. You will be paid a 3% distribution from your RRSP and a 15% distribution from your TFSA. - The interest on these MIC payments is tax-deductible - The exact amount that is pulled out of your RRSP that is normally taxable is completely offset. For more information, and to speak with our lead advisor Todd McLay send me an email at info@precedencewealth.com
Is this not the same strategy as a leverage loan except using your house as the collateral in a line of credit scenario? Plus you are still restricted as to how much you can contribute to TFSA annually. So if you had a mortgage of $500,000.00 at a 4% interest you would owe $20,000.00 / year in the mortgage but only have room for $11,000.00 in TFSA as a couple. So would the strategy be to have the mortgage interest cost below that of the maximum TFSA contribution? Also, how can you establish the rate so high on the second mortgage? I assume it would need to be competitive to the market.
Great question! No it is actually not the same. Because your balance sheet does not change overall. Your RRSP is indirectly lent back to you which eliminates the 3rd party investment risk. A leverage loan would result in both the RRSP and Non-registered investment loan being exposed to investment risk... and gains 😉
The only American who won't acknowledge this Administration's failed economic policies is Joe Biden. "Shrink-flation' is the least of our worries compared to rising rents and stagnant wages, but it is an undeniable indicator of how bad our inflation has gotten. I have $100k that i like to invest in a non-retirement account, any advice on that?
I would avoid index funds, mutual funds, and specific stocks for the time being. Right now, the best option is a fixed income of five percent. Put money aside for the times when the market really starts to bounce back.
45% of Americans do not invest in the stock market because of lack of guidance. Every year you don't invest, you are falling behind. I’m hitting numbers in the stock market I used to dream of… Going from $50k to $600k in my portfolio is surreal all thanks to insights from my financial advisor.
Please can you leave the info of your invstment analyst here? I need such luck
Finding financial advisors like Rebecca Nassar Dunne who can assist you shape your portfolio would be a very creative option. There will be difficult times ahead, and prudent personal money management will be essential to navigating them.
I greatly appreciate it. I'm fortunate to have come upon your message because investing greatly fascinates me. I'll look her up and send her a message. You've truly motivated me. Thanks.
This is one of the best videos showing how you can keep more of your hard earned money near retirement and/or as soon as your home is paid off 🙌
Question: should I take advantage of my RRSP top up at my younger age during 43% income bracket years and then look into this strategy since TFSA room is wide open?
@@marcin7570 Starting earlier is indeed advantageous, allowing for more time to leverage the benefits of the TFSA Maximizer strategy. By optimizing your TFSA contributions early on, you can build substantial tax-free savings over time. Additionally, beginning earlier provides a longer runway to accumulate wealth in your TFSA, which can be particularly beneficial as you approach mandatory RRIF withdrawals at age 71.
@@precedenceprivatewealth2872 appreciate the response :) would you lean towards maximizing RRSP due to tax deferral with annual refund and then maximizing TFSA at higher tax bracket once RRSP maxed out?
Hey @marcin7570,
Glad to hear you appreciate the response! When it comes to maximizing your RRSP versus TFSA contributions, it often depends on your individual financial situation and goals.
Maximizing your RRSP contributions can indeed offer tax deferral benefits, potentially resulting in an annual tax refund that you can then reinvest. Once your RRSP is maxed out, focusing on your TFSA can be advantageous, especially if you're in a higher tax bracket. TFSA contributions grow tax-free and withdrawals are tax-free as well, which can be beneficial in retirement or for other financial goals.
Ultimately, it's worth considering factors like your current tax bracket, expected future tax bracket, investment timeline, and specific financial objectives. Consulting with a financial advisor can help tailor a strategy that aligns best with your circumstances.
Cheers!
@@precedenceprivatewealth2872 thank you so much 😊 I’ll will definitely reach out in the future for assistance. Loving the videos 🙌 thank you 🙏 for sharing your knowledge
Thank you so much for this video. It hurts to think that half my RSP savings will go to the government! This has been a real eye opener. 🤩
I think I have to watch it 4 more times to understand it, but looks like a very good strategy to avoid excess taxation.
Great video!! I'm not there yet but so great to know there are legal CRA compliant strategies that allow regular Canadians to capitalize on their hard earned money in retirement!! Great explanation!
Aurora de Leon thanks! Glad to hear you found this video valuable to you.
Taxation is theft.
Just remember. Nobody is going to set all this up for you for free. It's not a given that "regular" canadians have the wealth to make this strategy profitable. I guess it depends on how you define "regular" though. I'm sure it's profitable for the tax accountants for sure.
@@jonbarnard7186 Of course but I'd rather pay a few thousand in management fees than hundreds of thousands in taxes to the government
i'll watch this video again in 30 years
@Precedence Private Wealth : This is very interesting. Thanks for sharing publicly. One thing I couldn't understand is if the money from the RRSP and the TFSA are invested into a mortgage, then how can money be taken out of the RRSP via a RIF in order to make mortgage payments? I know I must be missing something, but I can't figure it out.
Thanks.
I was wondering the same thing. I think this is roughly how it is done:
Using similar numbers to the ones in the video, you'll pay to your RRSP the following amount of interest
3%*500k=15k,
and you'll pay your TSFA
10%*100k=10k
of interest.
Now that you've paid 25k of tax deductible interest, you can RIF that 15k and put it in your TFSA.
This is the type of transaction that would attract GAAR. For those who don’t know what GAAR, it basically allows the CRA to deny the benefits of a transaction where the rules are used to avoid tax in a manner in which the rules were not meant to be used. Paying interest to yourself actually involves no risk in which case the interest paid on the TFSA may not be reasonable. If the CRA seems the interest to be unreasonable, it would be denied. Furthermore, for those that rely on RRSP to fund their retirement, the tax rate is rarely over 40%. Unless the CRA has actually issued an interpretation bulletin on this type of transaction or it has been tested in court, this would considered to be what is considered risky or “aggressive” strategy
Thanks for watching and for your comments Robert. There have been several important updates to this strategy that tackle many of the underlying concerns you have put forth. The more updated version of this video can be viewed at www.precedencewealth.com. This will more accurately illustrate the steps taken within the updated structure to satisfy CRA’s requirements. If you have further questions after viewing this video please reach out to us. We’d be happy to discuss further with you. Thanks again for watching our content.
Also, please remember that if an individual has only a modest RRSP then this type of strategy should not be prioritized. However, just because an individual is not in the highest tax bracket does it mean that they should not try to structure their financial affairs and assets in the most tax efficient way possible.
Really innovative way to reduce tax burden. It seems like a great plan for some
I challenge your statement about having a 35-40% tax burden to remove 500k-$1m from an RRSP. I found you can drive it to 13.5% pretty easily. Here are the assumptions..
Retired at 65 with $1m in RRSP an maxed out TFSA.
1. defer OAS and CPP until 71
2. take max RRSP deductions starting at 65 to drive 13.5% ave tax rate
3. continue to max out TFSA contributions
4. Then when forced to RIF RRSP will be low enough to stay close to the target 13.5% tax rate
5. At 71 your CPP and OAS are 45% higher and indexed to inflation
Using this approach you never hit OAS claw back. Over time the RRSP drives to zero while the TFSA never gets touched. Same outcome. Costs 13.5% tax but nothing complicated and does not depend on the government not shutting down these "loopholes"
Thanks for watching our content and for your feedback. I think the assumption you provided is missing the future growth rate within the RRSP. Even a family was to income split at age 65 for approximately $80K total income the growth wtihin the RRSP it will never allow them to reduce the value within the RRSP over time. Therefore, the only way to reduce it to zero is to make more substantial withdrawals which inevitably forces higher taxation. Also, it is assuming that clients are desiring that low of income from their savings up until age 65. So there is usually alot more to an analysis of whether this is suitable for a client or not. Age and oustanding balance are important factors, but there are other things to consider such as desired lifestyle, additional pension earnings, business assets, etc. that also play a role in this process. Also, although 13.5% is a low tax consequence in comparison, it still is not zero. 😉
@@precedenceprivatewealth2872 All reasonable assumptions and perspective. I actually factor all of it into the plan and admit that I am not typical case. What makes my situation unusual, is I am happy with zero risk investment(AAA bonds and GICs), and I am happy to live comfortably below my means. So my investment return only keeps pace with inflation. The last surviving member runs out of RRSP at 99 but leaves a ton of TFSA, property and fixed assets. So it does pay 13.5% tax which seems like a win after a life of 50%+, but I am happy with zero risk, and zero concerns about whether CRA is coming to get me.
The catch: $600,000 is now growing in a non registered account at 5% return, that means tax on $30,000 in the first year which would not have been taxed an RSP/TFSA, and this will be an annual reducing loss until the strategy is fully implemented.
However, this was a very creative way to offset the RSP WD taxes.
Also, other comments are right there are set up and Maintainance costs.
Beneficial if you have alot of income in retirement, most have just the basic around 15k - 20k a year so wouldn't be worth it for those types.
What the presenter said was that the gain in the taxable account is taxed differently. He said that bcz intrest earned inside the taxable account would be considered a “capital gain”, only half of it would be subject to taxation. Idk if that is correct, but that is what he said
You're earning capital gains and dividend income. Most Canadian companies' dividends are taxed at a better rate than regular income and RIF withdrawals. Capital gains also have a better tax rate.
with today high interest rate, one can get GIC @ 5.75% annually, the interest income is 100% taxable income...
but of course there is no risk
Fantastic video! Shame more people don't take the time to learn whats available to us legally.
Kyle Roberts 👌🏽
This whole taxing citizens is legalized robbery by the government.
@@martyjovan347 yeah, right. Good luck getting around without roads. Good luck calling police or paramedics. Such a fool.
Taxation is theft.
@@alan4sure Yeah good point it is not like they are printing the money out of thin air or anything.
Well RRSP is meant to be withdrawn over time, not at once. But if you must, it will be taxed. Great video.
The strategy is good...However the risk with this strategy is you have to sell your assets and then buy back in for the initial non-registered accounts.. Secondly when you move the money from the non-registered accounts you need to sell assets again to move the money back to the TFSA account. Then you need to purchase assets again if you're looking to invest and grow. My reservation on this strategy is the amount of selling and buying assets.. Something you need to consider in this strategy
Thank you for your comment Brandon.
Your initial assessment of the cash flows required is inaccurate. The only forced transaction required within this strategy is the liquidation of RRSP assets to initially fund the strategy.
However, this has since been adjusted as well and is no longer required.
Therefore, currently no other assets are required to be sold. The non-registered assets are eligible to continue to grow without being disrupted as long as the client desires.
Recall that the TFSA grows only by the interest earned on the private mortgage(s) in which it invests into.
There is not a “transfer” or moving of assets from the non-registered to the TFSA whatsoever within this strategy’s sequence of cash flows.
Hopefully that help clarify.
Should you have any further questions, feel free to send another comment/message or reach out to us directly and we can discuss more about these specific details. info@precedencewealth.com
A couple of questions: a) How can you have a RIFF if you are supposed to sell all CASH and re-invest in a Non-REG account? This implies the RRSP and TFSA are left empty, and b) Can you transfer in-kind to avoid DSC charges?
Hi Rosa Delgado, thank you for watching our video. 🙏🏻 Great question! The special purpose mortgage vehicle is actually held inside your RSP and TFSA. The proceeds of the resulting mortgages are then invested into a non-registered investment account.
With respect to DSC charges...unfortunately they cannot be held inside the RSP as they need to be sold in order to be used in the strategy. However, we have helped many clients manage their investments and sell them over time as they become free or matured. That’s really unfortunate though...any advisor that buys DSC’d investments for their clients should be ashamed of themselves. In 2018 it is complete unacceptable...but we are aware that it still often happens. 🙄
@@toddmclay5029Hi, I'm reading this 5 years after., I'm confused on how do you pull out a RIF when the only thing sitting in the RSP account is the mortgage? I'm assuming all the cash went into the Taxable investment account - or you just pull out the interest, after the mortgage payment is deposited.
@@chm5750 it sounds like you pull out the mortgage payment, but I'm not sure how to deal with it being less than the minimum withdrawal.
Fantastic video everyone has to watch!
This was fascinating to know about....viewing the video a few more times helped to get the full concept of it. Thank you so much!🇨🇦
Thanks Adam , Your videos in my opinion are the best source of answers for soon to be retiring curious Canadians outside the financial advisors office .
He is not Adam, He is Todd
@@jollandleunglmfao, I am sure they will nail this strategy if they paid that little attention to Henry's name 😂
It is of great value to watch.
I have done all these strategies. The problem is getting the CMHC approval, AND getting the institution to declare the mortgage as approved / allowable
JR
CMHC is no longer required. ruclips.net/video/i7Yl8uyid5U/видео.html
Does this strategy still work? I’d be concerned that CRA would stop allowing it. Could the mortgage be on a property outside Canada?
Liked the presentation - very smooth. I don't think there is anything wrong, however, there are some risks not identified (re-investment risk of the mortgage funds borrowed & potential under performance within one's RRSP) and additional overhead/mgmt costs with this strategy. Someone with a little knowledge can replicate this in a simpler way with less risk. If someone takes out a mortgage from a bank paying 3% interest on their home to invest and earn 6% growth then they are ahead of the game since 6%>3%. The interest deductibility exists to offset the tax liability arising from the withdrawal of $10,000 from your RRSP. You can contribute the $10,000 to your TFSA, too. This result is the same as your strategy. This is simpler and better than your strategy because 1) you are investing the funds in your RRSP to earn 6% (on the same investments as your non-registered account) instead of a mortgage that only pays 3%; 2) you avoid the high management costs of the mortgage administration (min $2-3k initial + $1k/yr) and professional advice (your 1.5% fee). Keeping the strategy simple allows one to focus on each element. If you are still working and have a deduction available from the interest on the mortgage, why not just use the deduction to offset part of your regular income from your job? Why not leave the funds in your RRSP until a time when you retire and have significantly less income (and thus less income tax)? [Rhetorical questions]. Despite the fact this strategy is sub-optimal, I still appreciate the video as it brings greater visibility to the benefits of learning to invest and tax planning. Thxs!
Thanks for watching and providing your feedback. Unfortunately your calculations are not accurate. This is not the same as a basic leverage strategy and therefore shouldn’t be compared to such. Leverage involves additional 3rd party investment risk. It is very effective to use leverage appropriately but this strategy does not do that.
Very interesting video. I appreciate your confidence. Though I have a very hard time accepting there is no risk for this strategy from the CRA. Can't they apply GAAR or something and call this tax avoidance in spirit? Quacks like a duck .....
I’m with you, pongster. This may be legal but it shouldn’t be. I like living in Canada and don’t mind paying my share of taxes- we get a lot from them: health care education, roads, police, etc.
The point of RSPs is to defer taxes, to avoid them. This scheme may be legal but it stinks.
Darn, typo, should be
The point of RSPs is to defer taxes, NOT to AVOID them
@@rorymacintosh6691 alot of the money is wasted. I know this as I'm a government employee.
@@rorymacintosh6691 from someone 30 years In health care Canada’s health care is sub standard. That’s the reality
I may have to close my eye and bit my teeth on paying tax........, It must be financial obligation somewhere that we have to pay..., I thought manage your asset and retire early to enjoy the hard earning money.Thank you for the information.
What about capital, doesn't that have to be paid as a part of the mortgage payment, along with the interest?
These frequent tax code changes are disrupting my long-term investment strategies. Are there ways to structure my investments to be more resilient to potential tax code modifications?
I honestly think America needs a completely restructure of their political system. It is just not working. Trump and Biden being elected out of 300 million people to run the country is evidence for that too.
This is why the US should elect more progressive politicians, who know how to manage budgets and give us (yes, pur country's initials literally spell out that pronoun) much better tax credits in return for better public education and better public healthcare. but since these are nonexistent, my husband and I are being guided to finance our retirement and healthcare through a diversified investment portfolio
@@BernardFrederick-tk7un How can I participate in this? I sincerely aspire to establish a secure financial future and am eager to participate. Who is the driving force behind your success?
How can I participate in this? I sincerely aspire to establish a secure financial future and am eager to participate. Who is the driving force behind your success?
Annette Marie Holt is the licensed advisor I use. Just search the name. You’d find necessary details to work with to set up an appointment.
Amazing strategy, amazing video! Thanks so much for sharing this information.
Feb 2021- Once RRSP funds are converted to cash and moved to a taxable investment account the taxpayer receives a Tax slip for the withdrawal. In effect what your proposal entails is making your house a registered asset that in reality sits inside your RRSP account. I would like to know total costs of tour strategy and rulings by CRA in the past 2-3 years.
Agreed on the fact that every penny that leaves RRSP account is withdrawal and WILL be added to your gross income for the year. BTW, RRSP withdrawals can be cash or in-kind, i.e., you don't have to sell your stock/bond/mutual fund in order to withdraw.
You don’t withdrawal your assets from your RRSP... you simply invest your registered assets into a special purpose mortgage investment that I turn lends you the money back to create the tax deductible interest. Hope that helps clear things up!
I heard you mentioned about TFSA growth is tax deferred but also mentioned that upon withdrawal it is tax free. So just to clarify, there is no tax deferral in TFSA growth because it is tax free.
Hi Neil, Thanks for your question.
Here is a brief overview that may help..
# 1. Take the assets in your RRSP & TFSA and sell them to CASH, but they are still being held inside these structures respectively.
#2 Now we Invest the CASH from inside your RRSP & TFSA into a Special Purpose Mortgage(MIC) Mortgage Investment Corp.
#3. After we invest your RRSP & TFSA CASH into the MIC, The actual mortgage proceeds are then re-lent to you and invested into NON-REGISTERED INVESTMENTS.
#4. Now we begin to withdraw the money out of your RIF which is taxable income.
#5. We then make your mortgage payments to the MIC.
#6. You will be paid a 3% distribution from your RRSP and a 15% distribution from your TFSA. - The interest on these MIC payments is tax-deductible - The exact amount that is pulled out of your RRSP that is normally taxable is completely offset.
For more information, and to speak with our lead advisor Todd McLay send me an email at info@precedencewealth.com
@@precedenceprivatewealth2872 Thanks for the reply but i didn't really get it. I'm not sure why RIF is mentioned. Do you to convert the RRSP to RIF? Is the mortgage of the house will be from the MIC. What proceeds from MIC?
@@NielTenebro Probably best if you speak with our lead advisor Todd McLay. info@precedencewealth.com
@@NielTenebro Yes you convert the RRSP to a RRIF. We then make your mortgage payments to the MIC.
You will be paid a 3% distribution from your RRSP and a 15% distribution from your TFSA. - The interest on these MIC payments is tax-deductible - The exact amount that is pulled out of your RRSP that is normally taxable is completely offset.
Niel, if you would like to have the concept explained, please contact us at info@precedencwealth.com and I can set up a call.
We had borrowed RRSP not because we need tax shield but due to insufficient money even for initial 20%. We had to pay back same amount with interest to government.
I don't understand the part where the RSP funds are transferred to a taxable investment account. Doesn't that trigger massive taxes because the funds are being withdrawn from the RSP?
They are offset by the tax deductible interest. Therefore eliminating the tax on the RRSP withdrawal. Hopefully that helps clarify. If not, reach out to us. Happy to walk through your questions together.
Sounds fascinating! I shared it to the people I know who actually have their house paid! LOL
Thanks so much Tim! We really appreciate you sharing this strategy. It’s important to note that your house does not have to be completely free and clear. You just have to ensure there is at least $250-300K in available equity. Hope that is helpful.
I paid off my 356,000 dollar cottage at 44. Bought it at 29 but I got a good deal & fixed it up with another 20,000. But I took amortization / mortgage for 15 yrs.
You are borrowing from your own RRSP and TFSA. How can it be non arm length mortgage? Do you go through MI Corporation. What will be the feel like to set up say a $1000000 in first and $500000 in second mortgage? How CRA views it?
You’re only allowed to contribute a prescribed amount to a TFSA each year (currently 6,500 dollars).
Thanks for watching. The money flowing into the TFSA is not by contribution but rather by interest earned. 🤔
Does anyone here watched Dave Ramsey show? I was wondering why you lending yourself with an interest rate of 3% plus up to 15% to a 2nd mortgage If you can pay cash. I think you are paying more with the interests rather than being taxed when you withdraw your money from rrsp. In addition, your money in the tfsa is already safe for being taxable, why you need to use it to get 6-15% interest rate of mortgage plus taxable if you you put or transfer to a non reg taxable account. If I will count the numbers, I'd rather be taxed than paying up to 18% in total for a mortgage with my own money.
Hi Connie Deja, Thank you for watching our video and for your comments. Here is a quick outline of why the strategy is set up the way it is. As discussed in the video, the benefit to having a personal mortgage inside your RSP and TFSA is that you are able to pay yourself interest. The interest itself is funded by a withdrawal from your RSP. And because the interest itself is tax deductible it totally negates the tax payable from the RSP withdrawals. You do not pay interest to anyone but yourself through this strategy. Therefore the 3% and 15% (not 18%) are actually paid directly to you personally. The end result is a tax free transfer to your TFSA overtime. Also, recall that this is not a leveraged debt situation. Because you own the mortgage on your RSP and TFSA personally, your net balance sheet does not change before or after engaging in this strategy. It is merely the taxation of the assets themselves that gets affected. Hopefully this helps to clarify. Please be sure to let us know if you have any other questions!!!
Oh I get it now. Thank you so much for this information. I think it will help to a lot of people in the future. 😍 I will take a picture of this comment of yours to make sure I will not forget if I'm going to use this strategy later on. Lol
You need to "Think Wisely" before jumping to conclusions. : )
correct me if i am wrong! what you're saying is you to have 1 piece of property Mortgage free. there fore it don't matter if you have 1, 2 or more pieces of property that are still mortgaged ?
Hi Jim,
Thanks for watching! Glad you found the video valuable to you. Great question!!! It depends on a number of factors including the value of the properties available to be used within the strategy. I would suggest reaching out to our team at info@precedencewealth.com and we can provide a personalized illustration based on your own specific situation. Thanks again for your time and attention!
@@precedenceprivatewealth2872 thanks for getting back to me so quickly. thanks for the link ill be checking it out asap
Great information. Thank you!
Advisor fees are not tax deductible for registered investments.
Correct! Must be held in a non-registered account.
money borrow to invest and it clearly
24:16
states interest paid on money borrowed
24:19
to invest is tax deductible assets must
24:23
be held in a non registered taxable
24:25
account they must be available for any
24:28
asset class that meets the income and
24:31
profit test that would include stocks
24:35
bonds mutual funds businesses etc it has
24:39
@@precedenceprivatewealth2872 Borrowing money to invest always has some level of risk. Sure you can write-off interest. You must have enough cash flow to pay off principal.
@6.15 he says all growth is tax deferred in the TFSA. This is incorrect - all growth in a TFSA is tax free (you never have to pay tax on it).
Uh, oh... It’s the literal presentation police
👮♀️🚨 😉
Yes, you are certainly correct it is 100% tax free
What would the upfront and ongoing hardcosts be for this strategy? CMHC costs - initial, monthly? Cost of preparing all of the associated paperwork/documentation, and management fees? I thought CMHC was there to just insure/gaurantee mortgages for first-time home buyes. This is why it is good to have a good financial advisor and accountant. Thanks for the video.
Hi Andre & Beth,
The main difference between the original TFSA video and the most recent one is that we now use the Mortgage Investment Corp instead of a direct mortgage and the strategy evolved to the point where there are no longer any CMHC fees required for the set-up.
@@precedenceprivatewealth2872 a clever idea indeed. Thanks for the reply.
@@precedenceprivatewealth2872 I am still struggling to understand the exact way this should works.
Would like to see a some sort of a spreadsheet with the details showing the RRSP/TFSA, the mortgage, the taxes, the deductions ... With the interest rates now substantially higher, what rates that could be payable on back to the RRSP / TSFA.
thanks
@@Coastal-rsidedown Send us an email at info@precedencewealth.com
A very interesting video, but the strategy is very costly for those who practice it from the information that I gathered by reading comments and the responses from advisers. Let’s say CRA can not do anything against it, and after ten years all your RRSP assets are smoothly converted into TFSA without any tax, you will end up paying a total fee of 24.9% of your whole portfolio that I assume is the total amount of your RRSP and TSFA in cash before investing in MIC. I got 24.9% because responding to manage fee cost questions in some comments they are saying it is 2.49% annually for the portfolio , remember you will now pay fees for your TFSA component as well which is tax free and should not have cost extra for you. And considering this strategy’s complexity and purpose it is very risky too, CRA really be fine with this or will fine this? What if your taxable investment is in the stock and the stock market crashes and keeps long depressed, and you need withdraw money to pay your mortgage which may have much more value than your investment?
Is it really worth to take risks at the said costs?
Hi Terry, thanks for taking a look at the video.
The total cost of the strategy is 1.45% Annually and includes:
1. Creating of a full comprehensive Financial Plan
2. Portfolio Management
3. Estate Planning
4. Accounting & Tax Advisory
There are no additional professional fees involved with managing the special purpose mortgage within the TFSA Maximizer Strategy. This makes the RRIF Meltdown Strategy much more cost-efficient in the early stages up to and within retirement up to age 71.
The RRSP continues to be invested, whereas in the TFSA Maximizer Strategy it is placed inside these special-purpose mortgages and receives no additional investment return.
Overall, the math will always show that it makes far more sense to take a two-step approach. The first step is the RRIF Meltdown and the second step is the TFSA Maximizer....but the latter certainly does not need to be activated until age 71.www.precedencewealth.com/fees
It sounds like a scam. Let use your 25% management fee as an example. I will be paying 25% of my entire portfolio (RRSP+TFSA) vs 33% for my RRSP from withdrawal. It is a wash at best. Now, I am facing all the uncertainty and risk with this private wealth management firm. It is a non start for me.
Great, informative video that is specific to Canadians. Thank you. I do have a mortgage so this is not as applicable to me but I was wondering how to transfer my RRSPs to a TFSA without incurring any penalties or fees if possible.
Hi Mark,
Can you send an email to info@precedencewealth.com and I can have you speak to Todd McLay from the video.
@precedenceprivatewealth2872 Hey there. Would you kindly respond to @chrism7199 comment above? I notices you didn't and his response seemed to have some reasonable financial implications
Here is what you need to qualify. The main restriction is that this approach is only available to “accredited investors,” those with $1 million of investable assets, or $200,000 earned personal income, or $300,000 earned family income.
One thing that most Canadians overlook is that pension values also can be used to qualify. For example a pension commuted value of $500k along with $500k of other investibke assets would help an individual qualify that otherwise would not without factoring in the pension assets.
This is very interesting concept , reminds me bit of the " Smith " system that recommended using borrowing to make your principal residence mortgage interest tax deductible.
We have that hat and t-shirt too! 😄
Leverage never goes wrong in the stock market....
Funny thing is I bet you used leverage to buy your first house…
Seems too good to be true. Is this a valid tested strategy? Who is liable if it is not allowed by the CRA?
HI Sumyunguy, Thanks for your question.
Because we are using realistic prescribed rates and you are satisfying the connected person rule, the borrowing to invest provisions and a reasonable profit test, we are following the letter of the law. Yes, the CRA is going to review it, but the laws are clear.
Well, my friend, when the shit hit the fan, you're the only one who gets it. Because you're the one who submit and sign your tax return.
I guess the big question is This tragedy foul proof? It will be nice PRECEDENCE can give us a straight forward answer since the inception of their strategy, does it pass CRA review/audit? a YES will be nice, if not, whats the basis of adjustment, if any....
my gust feel is this strategy wont pass the GAAR General anti avoidance rule, Section 245 of the Income tax act.
i am reading this four years after it was first posted. interesting idea but i have a few questions:
1. has CRA taken a position on this or studied it? i.e. is it still considered ok?
2. do you have any comprehensive numbers showing how this actually plays out over time? i.e. using the $500K and $100K figures (and assuming current mortgage rates, etc.) what are the various costs per year and how does the value of the RSP, TFSA and non-registered accounts change annually over the life of the mortgage? in other words, a spreadsheet showing all the monies paid out annually, their flows through the accounts, and how the accounts change in value annually for the life of the mortgage.
3. with current house prices so high, does this strategy still apply or does it need to be tweaked? or is it in fact more beneficial now? if the house price is, say, $1.2M but you just have $600K available for the mortgage, wouldn't you need to borrow the rest from another institution?
thanks, rob
Thanks for watching RJW.
1. This is what the CRA is going to see. You’re going to have to prove the interest deductions, and this is a slam dunk for us to prove.
2. A pre-qualified investment inside an RRSP
3. A Pre-qualified investment inside a TFSA that is reasonable
4. A RIF withdrawal
5. Tax-Deductible Interest
We have a game plan for everyone who enters into this strategy.
Why would the CRA think that you are creating an unfair advantage?
1. You are paying tax on your RRIF
2. There will be a little bit of a tax drag that you will get back at the end of the year
3. There will be a tax on the non-registered account
4. And it’s not a switch, it takes 10 - 15 years in some cases.
5. It’s the restructuring of your affairs
Now if the Government pivots and changes Syndicated Mortgage Rules on what would qualify inside a TFSA, then we will make adjustments.
This is very interesting, but I have to know a couple things.
1. This is purely a cash transfer scenario there is no payout to yourself during the process, correct?
2. Upfront deposit? Must be less than 20% as per cmhc insurable mortgage. This cash comes from? My pocket? Tfsa? Or is it just the CMHC fee you pay?
3. Term length? At 56 and having to complete before age 71 is this depending on the size of transfer from TFSA to RRSP? It would seem to me there's some principle interest amount that would make that sweet spot work?
3. A certain portion remains in the RRSP at the end of this. Just pay the taxes and move on?
Thank you for the insight. Although I'm only 38 It may be of interest for me to pay off my mortgage before retiring for this reason.
Hi David, thanks for the questions. There is no more CMHC Involvement, please see the updated video - ruclips.net/video/i7Yl8uyid5U/видео.html
It would be best if you speak directly with Todd to discuss the strategy.
Here is a brief overview that may help..
# 1. Take the assets in your RRSP & TFSA and sell them to CASH, but they are still being held inside these structures respectively.
#2 Now we Invest the CASH from inside your RRSP & TFSA into a Special Purpose Mortgage(MIC) Mortgage Investment Corp.
Then you borrow from another MIC corp at those prescribed rates and that’s what creates the tax-deductible interest.
#3. After we invest your RRSP & TFSA CASH into the MIC, The actual mortgage proceeds are then re-lent to you and invested into NON-REGISTERED INVESTMENTS.
#4. Now we begin to withdraw the money out of your RIF which is taxable income.
#5. We then make your mortgage payments to the MIC.
#6. You will be paid a 3% distribution from your RRSP and a 15% distribution from your TFSA. - The interest on these MIC payments is tax-deductible - The exact amount that is pulled out of your RRSP that is normally taxable is completely offset.
For more information, and to speak with our lead advisor Todd McLay send me an email at info@precedencewealth.com
I would say the major flaw in this strategy is that it is subject to GAAR. The interest rate charged by the TFSA "must reflect normal commercial practice". While it's true that second mortgages would generally bear higher interest rates, it is not true that a second mortgage held by the same person would bear a higher interest rate. Consider the following scenario: you have a first mortgage with RBC and then obtain a second mortgage from RBC. Would you expect them to charge you a higher rate on the second? There is no difference for the RBC between holding the entire amount in a first mortgage or a part in a first and a part in a second. The reason a second mortgage has a higher rate is because the party in second bears greater risk. If the same party is in first and second, there is no additional risk and the rate should be the same. I would be surprised if CRA had not already challenged the 15% rate on the second mortgage.
Hi Marc, Thanks for your interest.
The mortgages within the TFSA Maximizer Strategy are set up as open variable interest-only loans. Therefore, the 3% position mortgage within the RRSP is far less than the market, so most definitely with the reason for the strategy.
The 15% position, although it may seem high at first glance, is right in line with similar loans of similar security and liquidity positions.
Because again it is interest only and under an open mortgage format it can easily justify a higher rate than most normal 2nd position mortgages. Also, these mortgages are usually within the upper range of the higher ratio mortgages, again justifying its higher rate.
Put more simply, if you were to lend your own money on a 2nd position structure, that was interest only and a fully open mortgage you would easily demand at least 15%. 😊
@@precedenceprivatewealth2872 It really doesn't matter what the terms are in my opinion. The rate charged has to reflect the risk inherent in the loan. As is stated in the video, it would be stupid for someone to default on their own mortgage. The risk of the loan is very low, no matter what the terms or ranking are.
Something doesn't make sense.
If we take out a $500K mortgage with a 25 year amortization at 3%, the monthly payments have to be $2366.23. The first year of payment would total about $13,913 in interest.
However, if that $500K comes out of your RRSP or RRIF, then you'll have to pay an income tax of $233,335. The $13,913 interest the first year of your mortgage is hardly enough to cancel out the tax. Furthermore, twelve payments of $2366.23 is way over the $6000 TFSA contribution limit unless you have lots of contribution room.
The RRSP may be set up inside the mortgage structure, but at some part of the process, funds will have to get into the non-registered taxable account. That's where the income tax takes effect and it's too big to be cancelled out by the mortgage interest.
George Emil thank you for watching our video. I would suggest visiting our website to view a more recent video as well as the frequently asked question section. Once you shave a chance to view, please reach out again with your questions. We’d be happy to address them. However, I believe the majority should be answers at www.precedencewealth.com
What about the TFSA Limit?? How would you continue to put the funds into TFSA without over contributing?
Would it be that the “TFSA MTG Payment” includes the interest rate (which is your rate of return on the Self-Directed TFSA MTG) so therefore that return is not a Contribution? (But rather the growth on the TFSA capital?)
Bingo! Nailed it 🔨
Can this be done on a home that is already paid off and fully owned by the homeowner?
Hi Jason, yes it can. If you would like some more information, contact me at info@precedencewealth.com
A TFSA is not tax deferred. It is tax free. Tax deferred means you eventually have to pay tax on it. Not the case with a TFSA.
Ya ya...we know! ☺️
I found the following on your website:
"And, for those concerned about how CRA will view this strategy, well, every Mortgage Investment Corporation created within an RRSP, RRIF or pension account must be registered with them, guaranteeing their approval before implementation. So, no worries on that front. The main restriction is that this approach is only available to “accredited investors,” those with $1 million of investable assets, or $200,000 earned personal income, or $300,000 earned family income."
So it looks like MOST Canadians cannot adopt this strategy. The median family income in Canada is $105K.
BTW. What counts as the $1 million investable assets? RRSP? LIRA? TSFA? RESP? 401K? IRA? Roth-IRA? Registered Stock? Home Equity? Is this joint or individual?
According to other websites, those who can do this strategy, generally don't benefit enough to make it worth their while. And those who would benefit, do not qualify. Normally the mortgage insurance is about 0.5% on the first 65% of the value of your come. And 2.75% on the value after that. So you only want to mortgage the first 65% to participate in this strategy. And given the individual maximum of $75,500 that you can add to an TSFA, unless you have been maximizing your TSFA and using at an investment vehicle, you probably don't have much more than than in a TSFA.
Crunching the numbers a 3:1 ration seems about optimal. So that means you'll probably want to work with a $300K mortgage to start with. A couple might do up to a $600K mortgage. As an American though, I would avoid that. Because it would requiring putting my name on the deed of the home, which means it would be subject to capital gains tax upon sale. And since one would only want to do this on 65% the value of there home, they would need a house worth $1 million dollars. Converting $300K to being tax free to pay capital gains on a home that might be worth $2 million when you sell will probably not be a break even deal.
However, there are probably ways this strategy could help me, I just have not figured them out yet.
@@billc.riemers3245 HI Bill,
There is a updated video that no longer has CMHC Involved.
Here is a brief overview that may help..
# 1. Take the assets in your RRSP & TFSA and sell them to CASH, but they are still being held inside these structures respectively.
#2 Now we Invest the CASH from inside your RRSP & TFSA into a Special Purpose Mortgage(MIC) Mortgage Investment Corp.
#3. After we invest your RRSP & TFSA CASH into the MIC, The actual mortgage proceeds are then re-lent to you and invested into NON-REGISTERED INVESTMENTS.
#4. Now we begin to withdraw the money out of your RIF which is taxable income.
#5. We then make your mortgage payments to the MIC.
#6. You will be paid a 3% distribution from your RRSP and a 15% distribution from your TFSA. - The interest on these MIC payments is tax-deductible - The exact amount that is pulled out of your RRSP that is normally taxable is completely offset.
For more information, and to speak with our lead advisor Todd McLay send me an email at info@precedencewealth.com
@@precedenceprivatewealth2872 Thanks. As a follow-up. I am a dual US Canadian citizen. My wife is Canadian. All our income is in my name. My wife owns are home. I am not on the title so that we won't owe the US capital gains tax should we sell our home. Will this strategy still work? Or would I have to add my name to the title an incur an obligation to pay capital gains tax later?
@@billc.riemers3245 HI Bill,
If you have time for a quick call with our lead advisor Todd McLay, I can have all your questions answered, and possibly do an actual illustration for you with your exact numbers. info@precedencewealth.com
Smith Manoeuvre is a lot easier for an individual to setup and has a lot of the same benefits, with no setup fees.
We implement an expedited version designed to significantly expedite the mortgage payoff process, and the fees are tax deductible.
@@precedenceprivatewealth2872We are former residents of the US living in Canada. We have ROTH and Traditional IRA's but no RRSPs or TFSA's. Would we be eligible to benefit from this process?
All great, but what’s in it for you? I manage all my investments in a self directed account. What will your fees be to mange my portfolio?
Hi Carp Spudpicker, thanks for reaching out. We don’t have to manage the investments perse but we do then charge a 1-1.5% management / financial planning fee to implement this strategy. Therefore, you may as well have us manage your assets for you. Same exact cost. Our Risk Parity Asset Allocation portfolio provided a 10 year return of over 11% (before fees) with our biggest annual loss being -1.8% in 2018. But our clients are welcome to manage their own funds if they choose.
that is a great ! presentation
Let me see if I understand this. If you convert all your investments to cash then they are no longer growing in value correct? You are foregoing today's gains in order to get it back later when the rrsp cash transferred to the tfsa is tax-free. So a tfsa retirement dollar is worth one dollar but an rrsp retirement dollar is only worth let's say 75 cents because the government takes 25. You would have to withdraw about $1.34 from rrsp money to have a dollar.
larky368 great question Larky. Thank you for watching our content and for reaching out with your thoughts. I would suggest watching our more recent video on this strategy. It helps illustrate the flow of funds a little better than this older version. Simply visit our page and it pops up automatically. You followed along well however, the growth part you are mistaken on. Recall that the proceeds of the mortgages are invested. This can be inverses the exact same or differently than what your RRSP and TFSA assets were prior to entering into this strategy. Hope that helps clarify. Be sure to let us know if you have any other questions!
When would you want to start this strategy? Only after retirement when your rrsp is no longer growing? Or would you want to start to melt down the rrsp early while you are still working?
With all the costs for setting up mortgages and corporations (legal fees, accountants fees, advisor fees, consulting fees etc) where is the break point to make this worthwhile? Or to ask that another way, how large of an rrsp do you need to make this worthwhile?
Finally, if your partner has a pension that has limited the size of their rrsp, can you also combine their smaller rrsp with your own to melt them both down in one mortgage or do you need to set it up as an additional mortgage?
Hi Jordan,
Great questions! If you'd like, I can email you our fee structure, which might answer some of your questions. If you're interested, a quick call with our lead advisor, Todd McLay, can address the rest. You can reach us at info@precedencewealth.com.
Best regards,
Sounds like a good strategy, I see lots of upfront cost - to set up/combine and sell off RRSPs. Any difference if RRSPs are converted to RIFs already?
When selling RRSP isnt there Automatic withholding taxes? Cant quite understand that piece of the equation.
Great video.. thank you sooo much
You’re very welcome Linda. Glad you found it to be valuable. Let us know if you have any specific questions. Thanks again for your time and attention!
RRIF, RRSP can be rolled over to surviving spouse on death, so no tax implications.
I like it, it’s creative, I’m just only questioning about the interest rates. Obviously the strategy hinges on the difference in interest rates between first and second mortgage position. In your example you used 3% and 15%. What is the rationale behind choosing the interest rates? I mean, does it need to be CRA prescribed interest rates at the time of the contract (similar to a spousal loan, for example)? Or is that something that is handled on the mortgage company side of things? Would setting the interest rates for first and second position be described in or dictated by the Income Tax Act, or elsewhere? And, is interest on personal debt (I.e. yourself) for investing purposes deductible? Not sure if ITA has anything about non arms-length debt and deductibility.
P.S. I CALLED the biggest actual ‘risk’ being CRA Audit from the JUMP! Ha, go figure.
When implementing an RRSP meltdown strategy, the selection of interest rates is indeed a critical aspect.
The rationale behind choosing the interest rates, such as 3% and 15% in the example, is based on maximizing the spread between borrowing costs and investment returns.
Regarding the specific interest rates used, they don't necessarily need to align with CRA-prescribed rates, as with spousal loans. Instead, they are typically determined by the mortgage company based on market conditions and individual financial profiles.
While the Income Tax Act doesn't explicitly dictate these rates, it does provide guidelines on the deductibility of interest on personal debt for investing purposes.
As for deductibility, the ITA does address non-arm's length debt and its deductibility. However, it's essential to consult with a tax advisor to ensure compliance and understand any potential risks, such as CRA audits.
Your foresight in identifying CRA audits as a potential risk underscores the importance of thorough planning and compliance within RRSP meltdown strategies.
It's crucial to approach this strategy with a comprehensive understanding of both the financial and regulatory aspects involved.
Hello all, really want to know this strategy pass the CRA audit with flying colors? any disallowance or challenged SUCCESSFULLY BY CRA?
Hi Alex, we replied to your email.
@@precedenceprivatewealth2872
I would also like to know if this passed a CRA audit, as I see its on the CRA website under their TFSA maximizer scheme and the Advantage Tax applies.
@@user-mv9cz4iz9y Because we are using realistic prescribed rates and you are satisfying the connected person rule, borrowing to invest provisions and a reasonable profit test, we are following the letter of the law. Yes, the CRA is going to review it, but the laws are clear.
This is what the CRA is going to see:
Interest Deductions: You’re going to have to prove the interest deductions, and this is a slam dunk for us to prove.
A pre-qualified investment inside the RRSP
A Pre-qualified investment inside a TFSA that is reasonable
A RRIF withdrawal
Tax-Deductible Interest
Why would the CRA think that you are creating an unfair advantage?
You are paying tax on your RRIF
There will be a little bit of a tax drag that you will get back at the end of the year.
There will be tax on the non-registered account.
It’s not a switch, it takes 10 - 15 years in some cases
It’s the restructuring of your affairs
@@user-mv9cz4iz9y Because we are using realistic prescribed rates and you are satisfying the connected person rule, borrowing to invest provisions and a reasonable profit test, we are following the letter of the law. Yes, the CRA is going to review it, but the laws are clear.
This is what the CRA is going to see:
Interest Deductions: You’re going to have to prove the interest deductions, and this is a slam dunk for us to prove.
A pre-qualified investment inside the RRSP
A Pre-qualified investment inside a TFSA that is reasonable
A RRIF withdrawal
Tax-Deductible Interest
Why would the CRA think that you are creating an unfair advantage?
You are paying tax on your RRIF
There will be a little bit of a tax drag that you will get back at the end of the year.
There will be tax on the non-registered account.
It’s not a switch, it takes 10 - 15 years in some cases
It’s the restructuring of your affairs
This is good to know. I'm only 39 so I'm not sure if this applies to me yet but I liked and subscribed your channel for future reference.
It would depend upon the value within your RRSP and TFSA. There really is no perfect age. Although the earlier the better!!!
Very clear explanation and was thinking of using this strategy but only to find out at the end that it has to be mortgage clear so won’t work for me.
Doesn’t require a full and clear title. But it does need substantial equity available.
If I own a free and clear property, in this strategy, am I selling the property to myself? What about all my equity in the home?
You still own the property, that doesn’t change, once you put the mortgage on, that just pulls out all the equity in the property and turns it into cash, that you reinvest
I am interested in this strategy. I own a home free and clear but I have no Rrsp or Tfsa.
If I understand the point in the comments that you must be an accredited investor in Canada to use this strategy that means you must meet one of these criteria; 1. Have net worth of 5 million dollars or 2. Make 200 K for basically three consecutive years or be a certified investment professional. That's a fairly exclusive club is it not?
Unfortunately is does leave a lot of folks on the outside looking in 😌
Completely makes sense except for the part about the MIC...Mics cannot be owned 100% by one person (at most it is 25% I believe?) So are all your clients using one common MIC that we have our respective shares in to make this strategy work? Would love your feed back on this. Thank you for the video very well done.
Hi AoVI. Did you ever get a reply to this question?
Pretty interesting I must admit … are you following this strategy with your own accounts ?
Is this a legal manoeuvre that an average joe can pull off without alarming the tax man or is this reserved for lawyers with a business degree overseeing large scale portfolios for stockholders in a firm?
Hi Coltukkor, thanks for watching.
You have to be extremely detailed with the TFSA Maximizer Strategy.
The Government is likely going to change Syndicated Mortgages, that space is running wild, but until something changes, we’re going to continue to do what we can do.
Because we are using realistic prescribed rates and you are satisfying the connected person rule, the borrowing to invest provisions and a reasonable profit test, we are following the letter of the law. Yes, the CRA is going to review it, but the laws are clear.
1. This is what the CRA is going to see. You’re going to have to prove the interest deductions, and this is a slam dunk for us to prove.
2. A pre-qualified investment inside an RRSP
3. A Pre-qualified investment inside a TFSA that is reasonable
4. A RIF withdrawal
5. Tax-Deductible Interest
We have a game plan for everyone who enters into this strategy.
Why would the CRA think that you are creating an unfair advantage?
1. You are paying tax on your RRIF
2. There will be a little bit of a tax drag that you will get back at the end of the year
3. There will be a tax on the non-registered account
4. And it’s not a switch, it takes 10 - 15 years in some cases.
5. It’s the restructuring of your affairs
Now if the Government pivots and changes Syndicated Mortgage Rules on what would qualify inside a TFSA, then we will make adjustments.
I'm with you up until about 17 min. I don't understand where the borrowing to purchase income producing invesments actually takes place. I realize it is critical for not paying the tax but can't see when it actually happens.
Thanks for watching Stratt Gatt. It may be best to have a quick chat about the details. Please email us at service@precedencewealth.com. We can set up a time for a conversation to answer your question and clarify for you. We’re always happy to help! 😊
the difference between tax avoidance and tax evasion is 20 years
Hi William, Thank you very much for watching and taking the time to write to us.
Because we are using realistic prescribed rates and you are satisfying the connected person rule, the borrowing to invest provisions and a reasonable profit test, we are following the letter of the law. Yes, the CRA is going to review it, but the laws are clear.
This video is 5 years old. He needs to update his numbers BIG TIME. How does the extreme rise in home prices and interest rates factor into his theory of investments vs mortgage? Also a yong couple would likely have a Reg'd Home Ownership Plan to buy a home rather than an RRSP. How does that factor into his theory? Does it only work with a TFSA and an existing mortgage?
Hi Gail, thanks for the questions.
Of course, anyone who reached out directly to us and had us run an illustration would use current rates.
The strategy isn't structured for young couples starting out, it's primarily for people who have $250,000 or more in their RRSP.
Each circumstance is unique and all of our illustrations would factor in little to no TFSAs or someone who has maxed them out.
its real stuff.THANKS
I'm watching this in 2024. Does this strategy still work?
Certainly, we are still currently utilizing this strategy. If you would like more information, feel free to reach out to us at info@precedencewealth.com.
In my opinion, the CRA will most likely rule unfavorably on this strategy and may penalize folks that do this.
Thanks for the comment. Canadians have every right to use the full scope of the Canadian tax code to maximize their taxable position to their benefit. That is why it is crucial to work with a licensed and qualified tax professional in order to ensure your compliance with CRA. We’re always happy to discuss further should you have any additional questions.
@@precedenceprivatewealth2872 In your experience implementing this strategy, has CRA ever given you or the client any pushback?
Hi Stefan A,
I can send you an email that outlines the strategy with regard to The Canada Revenue Agency.
One of the services we provide is to do tax preparation and filing for our clients.
Over the last 10 years, we know what the CRA is going to look for and at the click of a button, we can send off all the supporting documents.
Send me an email at info@precedencewealth.com and I can send you the overview.
What if your TFSA is worth a lot, more and can you and your wife do this together.
Yes, you and your wife can combine your efforts for your TFSAs. While each of you has an individual TFSA with your own contribution limits, you can strategize together to maximize your investments and manage your overall financial planning. For detailed advice tailored to your specific situation, it’s best to consult with a financial planner. Feel free to reach out if you need personalized guidance!
I would love to see the steps and money flow in an excel diagram. Also How can u own non arms length mortgage?
Hi Richard,
If you're interested in seeing an illustration, send me an email at info@precedencewealth.com
Smith manoeuver didn't work out for me with market crash and dividend funds eating themselves around 2008 crash. The HELOC we set up remains very useful to us today. Very fancy manoevering by an advisor with moving around of large funds and the fancy manipulation is something I would never do on a large scale again.
Very interesting and am curious as to the fees involved .
HI Helen,
The set-up fee for the TFSA Maximizer Strategy that is paid to M-Link Mortgage Corporation is 1.45%
Portfolio Management fees are listed at www.precedencewealth.com/fees however, based on the size of their portfolio(s) it would be 1%.
The financial planning, tax advisory, etc. is built into the asset management fees as a value-added component of working with Precedence Wealth.
Would have been quite useful when rates were low
Rates are mostly irrelevant. In fact these tax deductible strategies perform better when rates are slightly higher.
How well would this strategy work when one of the couple is a US citizen? e.g. The interests earned in a tax free savings account are income that is still taxable income for the US. Which means total TSFA contribution room for the couple is $75,500 in 2021...
The video does not go into fees to set-up and manage this procedure. It also does not explain why you cannot take over a first mortgage from a financial institution.
Hi Robert, here is an updated version of the video that should explain things better.
The main difference between the original TFSA video and the most recent one is that we now use the Mortgage Investment Corp instead of a direct mortgage and the strategy evolved to the point where there are no longer any CMHC fees required for the set-up.
The total cost of the strategy is 2.45% Annually and includes:
1. Creating of a full comprehensive Financial Plan
2. Portfolio Management
3. Estate Planning
4. Accounting & Tax Advisory
# 1. Take the assets in your RRSP & TFSA and sell them to CASH, but they are still being held inside these structures respectively.
#2 Now we Invest the CASH from inside your RRSP & TFSA into a Special Purpose Mortgage(MIC) Mortgage Investment Corp.
#3. After we invest your RRSP & TFSA CASH into the MIC, The actual mortgage proceeds are then re-lent to you and invested into NON-REGISTERED INVESTMENTS.
#4. Now we begin to withdraw the money out of your RIF which is taxable income.
#5. We then make your mortgage payments to the MIC.
#6. You will be paid a 3% distribution from your RRSP and a 15% distribution from your TFSA. - The interest on these MIC payments is tax-deductible - The exact amount that is pulled out of your RRSP that is normally taxable is completely offset.
if you would like to speak with our lead advisor Todd McLay directly, send me an email at info@precedencewealth.com
Thanks for watching.
A little above me but I think I understand the plan. I will ask my investment broker about his thoughts . Do I have to take all my rrsp out for this or can I do 1/3 like a million . What if I have no room left in my TFSA .
Hi John,
The minimum amount we would consider doing the strategy for would be $250,000. Depending on your age, we wouldn't even implement the Maximizer Strategy until age 71 and would do a traditional RRSP Meltdown process first.
Here is the video on the RRSP Meltdown Strategy. ruclips.net/video/_sx2ZOflB3w/видео.html
Yes, but what if you have no room in your TFSA. So I am taking out my RRSP bit by bit first and not talking my TFSA.
You talked about if a person were to pass away having 500k in rrsp then that would be as income on that day, i heard that you can have your spouse as beneficiary and that if you pass away it becomes your spouses money instead, are you familiar with that?? Thanks for the video.
If you declare your spouse as beneficiary of your RRSP, it's automatically his/her RRSP when you die. If the last surviving spouse still has RRSP upon his/her own death then the entire RRSP would be deemed income in the year of death and the estate would have to pay any tax owed on the final income tax return.
Didn't fully understand this, however, can you use this strategy before retirement to start withdrawing money?
Absolutely! Starting to plan and strategize well before you're required to take RIF withdrawals can be highly effective in optimizing your financial situation for retirement. By implementing proactive strategies, you can potentially maximize your savings, minimize tax implications, and ensure a comfortable retirement lifestyle. If you'd like a personalized illustration tailored to your specific numbers and circumstances, please feel free to email me at info@precedencewealth.com. I'd be happy to assist you further.
Interesting idea but has this strategy has ever survived a tax audit? Jurisprudence 101 in tax law is that a strategy whose sole purpose is to avoid paying tax is rejected.
Yes. This certainly is not avoidance as there is tax on the non-registered investments. No strategy is perfect. However, this sequence of cash flows allows Canadians to consistently create a more favourable outcome out of their RRSP. But it definitely is not a “switch” and something that happens over night. It takes several years to obtain a substantial benefit.
@@precedenceprivatewealth2872 let me congratulate you on an imaginative strategy. However, it seems to me the only goal of the strategy is to avoid paying tax on RRSP withdrawals - after all, it is the title of the video. I would love that but would it survive a CRA audit? I also wonder if CRA would accept you paying a 15% interest rate to your TFSA. Anyway, I thank you for a thought provoking video.
One think I don't get about this video, is if your investments are held in a taxable account, then all the earnings in that taxable account are taxable. Lets take some numbers. Suppose I have $300K in an RRSP and $100K in tax free saving account. So I borrow this $400K as a mortage. To keep it easy lets say $400K is the maximum amount of mortgage I qualify for.
At the start of the first year I have RRSP=$300K,TFSA=$100K,Mortgage=($400K),Investment=$400K.
Net estate post tax value: 250K (assuming 50% tax on RRSP)
I collect 3% interest in the RRSP and 15% in the tax free savings account. First year I pay $15K back to the RRSP and $30K to the tax free savings account. That is $24K interest and $21K principle. My taxable investment account earns 6%, so $18K taxable income. Presumably I can return the $21K principle from my investment without jepordizing the tax exempt interest status. I can also $6K from my RRSP as income for a net $0K income. If I also pay that $18K income from my investment, that leaves me a net $0 tax, and net $0 cost.
I can immediately borrow $21K of what I added to a tax savings account to to bring my mortgage back to $400K.
At the end of the first year I have RRSP=$303K, TFSA=$115K,Mortgage=($400K),Investment=$400K.
Net estate post tax value: $266.5K
If I had just left the money the and tax free savings account each earning 6% I would have had:
RRSP=$318K, TSFA=$106K: Net estate post tax: 265K
Which means to break even on this the first year, the administrative costs, mortgage insurance, etc needs to be less than $1.5K.
Is my analysis basically correct? If course as the years progress the RRSP will start to decrease because more and more of the mortgage is held by the TSFA.
But the CRA will likely classify this as a scam if repeatedly the amount earned on the investment is less that the total interest paid. As it would indicate there was no reasonable expectation of taxable profit.
From what I read and understand, a second mortgage cannot be used in a non-arms length mortgage. How does the TFSA legally come into play in this case? I like the idea and have a lot of experience with RRSP 2nd mortgage lending. I also have a paid up house and vacation property with maxed out RRSP's and TFSA accounts. If I can better understand the CRA rule with respect to the 2nd mortgage (TFSA) part, I might give this a try.
Michael Power thanks for your question! Yes, the method has adjusted slightly since the initial release of this video. I would suggest watching our more recent video at www.precedencewealth.com
We use special purpose mortgage investments to facilitate this strategy currently. It is much more efficient and cost effective then what is outlined in this video. Although the same strategy in general the specific nuances are far improved. Let us know if you have any questions after checking it out. Thanks so much again for the attention and consideration Michael.
@@precedenceprivatewealth2872unable to locate updated video on your website
wondering if you are still monitoring the chat on this video... :p you mentioned leveraging rrsp and tfsa to set up a pool to purchase the house (something along that line)... can you leverage a LIRA account instead of RRSP account? given the high interest rate these days.. this strategy may make sense, if i understand it correctly
Hi @zc2051 Certainly! It's great to see your interest in exploring different financial strategies. While leveraging RRSP and TFSA for a home purchase is a common approach, using a LIRA (Locked-In Retirement Account) is indeed a possibility, depending on your specific situation and goals.
Leveraging a LIRA for a home purchase could make sense under certain conditions. LIRAs typically hold pension funds, and the rules governing them can vary by jurisdiction. Here are some considerations:
Unlocking Restrictions: LIRAs often have restrictions on withdrawal until retirement age, but some jurisdictions allow unlocking under specific circumstances, such as purchasing a home. It's essential to understand the rules governing LIRAs in your region.
Interest Rates: If you're considering this strategy due to high-interest rates, it's crucial to assess the overall cost of borrowing and compare it with other financing options. Ensure that leveraging the LIRA aligns with your long-term financial goals.
Tax Implications: Withdrawals from LIRAs are generally subject to taxes. Understanding the tax implications of unlocking funds and any potential tax advantages is essential in making an informed decision.
Professional Advice: Given the complexity of retirement accounts and the potential impact on your financial future, it's highly advisable to seek professional advice from a financial advisor or tax expert. They can provide personalized guidance based on your specific circumstances.
In summary, leveraging a LIRA for a home purchase is a possibility, but it requires a careful evaluation of the rules, costs, and potential tax implications. Always consult with a financial professional to ensure that the strategy aligns with your overall financial plan and objectives.
I understand the strategy but if the value of the home securing the mortgage was far in excess of the amount of both mortgages combined, would charging such a high premium on the 2nd mortgage not be deemed as being unreasonable? If so, would that not be putting you at risk of being charged for tax avoidance?
Exactly. Market 2nd mortgage rates are currently 6.95% and first mortgage rate are 3.99% (a 3% difference). Only if you expect a extremely high level of default can you charge 15%, which is unlikely given that it is a secured loan and property values would need to drop so low that the equity gets wiped out. Notice how he has on the board a rate of 6% - 15% for the second mortgage but circles the 15% as though that is the realistic number. 6% is more like it if the risk level support it, otherwise you can call the first $1,000 the first mortgage and rest of the $500,000 a second mortgage, which would be a farce. Also, if this is a closed circle where the lender/borrower is the same person, CRA will likely challenge the "market rates" charged as it is not part of the mortgage market and assign it 0.5% for admin. costs only. In the meantime company walks away with 1% of your investment every year plus other fees.
@@PNWCoastGuy I didn’t rewatch the video but I believe he also suggested the loans would have to be CMHC insured, reducing the risk of default to virtually nil. I’m thinking this strategy would carry a very high risk of being rejected through audit.
CMHC is not a requirement from private lenders so this is no longer necessary.
i think this is worse than rental furnace sold door to door, that puts lean on your house. tops single person can have in tfsa up until now is 100k.
I have a HELOC on my house and have used a portion of it for a down payment on a rental property. I'm going to sell the rental property within a few years. Can I use my own house to do this strategy when I'm using a portion of the HELOC for the rental? Thank you.
Thank you very much fore this Todd! Honestly, this is a strategy that I had no clue about. Well explained and simply demonstrated.
I'm struggling to find the real value or how this actually applies in a real life scenario. No matter how you slice it, you are only allowed to add 5.5K to a TFSA a year, so unless this is being applied over decades, how am I ultimately ever moving a huge sum of new money into my TFSA? Also, this really seems like a spinoff of a traditional meltdown, wouldn't it be simpler to just apply for a HELOC, and pay the interest with RSP proceeds and end up transferring assets that way?
Hi bmarando89, thanks for the comment.
Recall that the money flowing into the TFSA is not a contribution, but rather an interest earned within the TFSA itself. Because the TFSA owns the Mortgage Investment Corporation shares (MIC) it earns the prescribed rate of interest (15% in the video example) which is earned tax-free. This is not a contribution but rather interest earned within the TFSA. Our clients within this strategy are still eligible and always advised, to continue to make maximum contributions to their TFSA each year.
You can find more information on our website as well.
www.precedencewealth.com/tfsa-maximizer
If this strategy becomes too popular the government will shut it down. Loopholes come snd go with the demands on the tax base, and those demands are going to the sky.
Quite possibly...but it still makes sense to do even if you consider the impact of a few successful years within the strategy.
Do you fly drones in your room? What’s going on with the sound? 😂
What if you do this to buy your primary residence, you can't claim the interest as a tax deduction can you? We're considering selling our home soon and renting for a few years before buying a retirement residence. In that time we'll top up our RRSP and TFSA accounts close to your example. We would then be in a position to buy a $750,000 house with 20% down and $600k mortgage. Is the interest on those mortgages tax deductible then or would we have to borrow against those assets to finance the house and deduct that tax?
Instead of the mortgage on a house, could you use farmland, that is mortgage free, for the mortgage? Would this negate the CMHC requirement?
I understood RRSPs are before tax. Tfsa is after taxes were taken off
# 1. Take the assets in your RRSP & TFSA and sell them to CASH, but they are still being held inside these structures respectively.
#2 Now we Invest the CASH from inside your RRSP & TFSA into a Special Purpose Mortgage(MIC) Mortgage Investment Corp.
#3. After we invest your RRSP & TFSA CASH into the MIC, The actual mortgage proceeds are then re-lent to you and invested into NON-REGISTERED INVESTMENTS.
#4. Now we begin to withdraw the money out of your RIF which is taxable income.
#5. We then make your mortgage payments to the MIC.
#6. You will be paid a 3% distribution from your RRSP and a 15% distribution from your TFSA. - The interest on these MIC payments is tax-deductible - The exact amount that is pulled out of your RRSP that is normally taxable is completely offset.
For more information, and to speak with our lead advisor Todd McLay send me an email at info@precedencewealth.com
There is a difference between claims and reports
Is this not the same strategy as a leverage loan except using your house as the collateral in a line of credit scenario? Plus you are still restricted as to how much you can contribute to TFSA annually. So if you had a mortgage of $500,000.00 at a 4% interest you would owe $20,000.00 / year in the mortgage but only have room for $11,000.00 in TFSA as a couple. So would the strategy be to have the mortgage interest cost below that of the maximum TFSA contribution? Also, how can you establish the rate so high on the second mortgage? I assume it would need to be competitive to the market.
Great question! No it is actually not the same. Because your balance sheet does not change overall. Your RRSP is indirectly lent back to you which eliminates the 3rd party investment risk. A leverage loan would result in both the RRSP and Non-registered investment loan being exposed to investment risk... and gains 😉