A case study on RRSP planning and what a good financial planner can do for you
Also - Announcing a minor rebrand ;)
Before we get into the RRSP planning today - announcing a minor rebrand to the newsletter. When I started this during the Trump April 2025 fiasco - I just grabbed a title that made sense and got moving. 2 reasons for the rebrand.
I wouldn’t go as far as to say that I ripped off my friend and industry colleague Markus Muhs’ Podcast: Just Some Musings (Which is a brilliant name once you understand that the podcast is co-hosted with his colleague Justin Lee). I would also say that I was not very thoughtful in considering that they have a wicked name already driven by creativity and it feels like some type of infringement to say the least. Even if not legal…call it professional/friendly courtesy. With that said - I also highly recommend his most recent article detailing his “Return Quilt” of Different Asset Class Returns. It’s highly informative and a quick read.
So If not “Aravind’s Financial Musings”…what then?
The Second reason is much more “me”. You all know I like being a little quirky and I’ve started to gain a reputation for being overly nerdy and diving into numbers and planning topics in ways other often do not. As a result a handful of people have coined the nickname “Nerdavind”..and I definitely love the nickname. So - we rebrand to Nerdavind’s Numbers and off we go.
Now on to what you really want: - A case study involving all 3 prior blog posts to understand the real value.
I have a client situation I just wrapped up some tax planning on (They allowed this to be published). The couple each have a corporation and pay themselves about $90,000 of salary. So we have a total household income of $180,000 (minus some CPP Enhancement deductions). They have 2 kids - one of which will turn 18 in 2027 and they still collect Canada Child Benefit. As a result - if you do the math in Ontario - you will know that their marginal income tax rate is 29.65% and their “effective marginal tax rate” if we include Canada Child Benefit is 35.35%. We project them retiring at the 29.65% in the future based on the financial plan thus far. Given one kid will age out of the CCB next year - this is the last full year of 5.7% CCB clawback we will see.
They have come to me with ample RRSP room for a handful of reasons that all check out and the corps are a relatively recent addition to their planning situation.
However - what is interesting is that one of them has a large “due to shareholder” amount in their corporation. I haven’t covered this so in simple terms of think of “due to shareholder” as amounts of money you can take out of the corporation tax free and it’s not deemed as income. It’s similar to taking money from your TFSA in terms of taxes. No real tax implications.
So - if you remember my piece from last week about corporations - investments in the corporation are tax - INEFFICIENT when compared to RRSP’s. So all else being equal - I would recommend RRSP for long term investing vs Corp.
What makes this wild is because of the due to shareholder amount that can come out - we are actually looking at the scenario like this: Would you rather:
Take money that’s yours - and put it into the corporation where you will get hit with a higher tax rate on your passive investments and not get any tax deduction for it…OR
Take that money - put it into the RRSP, get a tax deduction (and increase on CCB), and compound more effectively?
So - we decided (The clients and I after a meeting with the accountant) to take a bunch of the “due to shareholder” funds out, and essentially roll in $60,000 into the RRSP’s of the two parents.
I also want to be very clear - when I phrase it like this - it sounds like the other people around this equation before me weren’t doing any planning. That’s not true. The corp was recently set up, there are reasons for the due to shareholder and this much RRSP room etc. The accountant and the clients were amazing, fast, smart, and courteous in all of this and I genuinely enjoyed the process of doing this planning with them.
What is the value or impact of this decision?
If you remember my first post - it all comes down to the money in vs the money out later on.
The tax impact of the additional CCB.
In this case we get $60,000 that we will contribute to the RRSP’s. Now this client is projected to retire at the 29.65% bracket in the future so there is no income tax benefit between the RRSP or the TFSA…BUT by catching the last year of 5.7% CCB - we get that additional tax savings + the bonus compounding of those tax savings over about 20 years inside the RRSP.
$60,000*5.7% = $3,420
$3,420 compounded at 5% over 20 years = $9,074
(This is just a hypothetical because remember life doesn’t work like this properly - they were saving $60K and spending other income so really - the tax benefit means more money free to spend today as the result of the additional CCB but you get the idea).
The benefit of the investments compounding in the registered account vs paying tax in the corp. (Reminder - look at the comparison I did here on a single year for interest income. Foreign Dividends are actually worse in the corp in a sense).
I don’t actually have a simple easy way to compare and contrast this one over 20 years that’s fit for a blog. I might try to model this one specific implication inside my planning software in the future - but - as per our RRSP vs Corp piece last week - you know the RRSP generates more wealth long term. So suffice to say it - some tax wins here too.
This is why financial planning is interconnected and somewhat difficult to isolate for “what is a planner worth”. I’m not always going to pin down one off situations like this every month or every year…but sometimes - there’s thousands of dollars of tax savings which means thousands of dollars of value to the clients right under our nose if we know how to connect the dots in a unique way.
Aravind Sithamparapillai is an Investment Advisor with Aligned Capital Partners Inc. (“ACPI”). The opinions expressed are those of the author and not necessarily those of ACPI. This material is provided for general information and the opinions expressed and information provided herein are subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. Before acting on the information presented, please seek professional financial advice based on your personal circumstances. ACPI is a full-service investment dealer and a member of the Canadian Investor Protection Fund (“CIPF”) and the Canadian Investment Regulatory Organization (“CIRO”). Investment services are provided through ACPI or Ironwood Securities of Aligned Capital Partners Inc, an approved trade name of ACPI. Only investment-related products and services are offered through ACPI/ Ironwood Securities of Aligned Capital Partners Inc. and covered by the CIPF. Financial planning and insurance services are provided through Ironwood Wealth Management Group. Ironwood Wealth Management Group is an independent company separate and distinct from ACPI/ Ironwood Securities of Aligned Capital Partners Inc.