Just keeps getting better...
Jean-Pierre Laporte, BA, MA, LLB, RWM
Pension Solutions Consultant/CEO
This will be my last article/post for 2021, and I would argue I've kept the best for the very end.
The Personal Pension Plan ("PPP") is quickly approaching its 10th anniversary since it was offered to Canadians in the financial industry. As we approach this milestone we have witnessed many great improvements. The one I need to underline is the incredible synergy between the use of a PPP and the Smith Manoeuvre that was pioneered by Fraser Smith decades ago.
It is now well-established in advanced planning circles that converting non-deductible debt into productive investment capital and generating substantial tax savings along the way is simply smart. Robinson Smith (see smithman.net) continues Fraser Smith's legacy and helps trained financial professionals utilize this smart strategy correctly to comply with all applicable laws.
What Robinson and I realized (our epiphany moment in 2021) is that if you are a business owner that owns a house and has a mortgage on it, it was now possible, albeit indirectly to achieve multiple objectives simultaneously, without dipping into one's scarce cashflows.
The objectives being:
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Thus, all of the business owners who decided to forgo setting up a PPP on the basis that they "simply didn't have the cashflow to save" can now dismiss this objection.
It is no longer an excuse to delay saving for retirement in an organized, professionally-managed, and tax-efficient manner via the PPP, since the missing cashflow can come thanks to the SM.
This message may be simple and to some, obvious. However, if you were to poll most of the business owners that still don't have a pension plan, the top reason they supply is that they can't find the liquidities to set money aside for retirement. (The other reason is that the sale of their business is their pension plan, the famous portfolio with a single stock in it !).
The Smith Manoeuvre solves this problem and makes private real estate investments (tax deferred like with an RRSP) now possible within a PPP. It just keeps getting better and better...
Can you expand on points 2 and 3?
Driven to help my clients, who include multi-generational families and business owners, increase their financial wellbeing and build lasting wealth.
2 年Boyd England QCxPBE, BECxP something that may be of interest to you. Congratulations Jean-Pierre Laporte, BA, MA, LLB, RWM on another high level planning piece that may be beneficial to any of the disciplines that the wealth management industry taps into.
Simply. Better. Benefits.: Exceptional Value | Happy Humans | Avid Walker ??♂? Are you looking to contain your employee benefit costs in 2024? Let's connect.
2 年Super article JP. Looking for more information this year.
Pension Solutions Consultant/CEO
2 年...and for those who say "wait a minute! you've just taken on brand new debt...how are you going to pay it off since the debt is personal, but the 'asset' is sitting in a largely inaccessible corporate Personal Pension Plan?", an answer is required. First of all, because interest payments are now tax-deductible personally, cash that would have gone to the CRA in the form of personal taxes can now be used to pay off the interest. Let's say my salary is $100,000, and the total annual interest paid to the bank is $20,000. Using a 50% tax rate, $10,000 of personal tax monies can be used to pay down the mortgage. Secondly, because contributions made to the PPP are tax-deductible at the corporate level, when the corporation earns income, because it already contributed to the PPP under this enhanced Smith Manoeuvre, the cash it would have normally sent to CRA to pay corporate taxes is now available for other uses. One of these is to pay off any shareholder loan extended by the PPP client/shareholder. Since the repayment of shareholder loan is mostly tax-free to the lending shareholder, that same corporate cash can then be funnelled to also repay this personal mortgage. Recall that so long as the PPP earns a rate of return that matches the interest rate paid to the bank, the solution will be net positive due to the deductible nature of the contributions. Creating a wedge between the returns within the PPP and the interest owed personally to the bank is simply 'gravy on top'. Some of the real estate investments available to PPP clients are in the 8%+ rate. Most banks lend on a secured mortgage at a much lower interest rate. Figure out what you've been missing out on for years! [That's my first gift for 2022 to our readers... ?? ]
Financial Services Consulting and Compliance Professional. Over 40 years of experience in the financial industry. Expertise is in finance and operations specializing in private equity and venture capital.
2 年Thanks J P. You have helped so many people over the years. Your advice has been superb!