FREQUENTLY ASKED QUESTIONS
1. So how much is this plan worth?
This answer is unique for every client. Let’s assume we’re talking about a regular mortgage at a 4.5% interest rate. Below is a table of tax deductions off your personal income in the first year. These tax deductions occur year after year for as long as the life of the loan.
Mortgage Income Tax Deductions in Year 1
$300,000 $21,301
$400,000 $26,735
$500,000 $32,169
$600,000 $37,603
2. Is this really legal?
Absolutely! The IMPACT plan utilizes the very basic principles of the Income Tax Act. It is a legal and common practice to deduct interest when you borrow for the purpose of investing to produce income. Further, a recent Supreme Court of Canada decision upheld a Canadian taxpayer’s right to structure the mortgage on their principal residence for maximum tax benefits.
3. Does my company own my house?
No, you maintain full ownership of your home. Your company does not acquire any interest in your personal property. The IMPACT plan uses your home to secure a loan which you, in turn, invest into your business.
4. How is this any different from the Smith Manoeuvre or the Tax Deductible Mortgage Plan?
We aren’t suggesting you remortgage your house to borrow money to gamble in the stock market. Your loan doesn’t take 10 or 15 years to become 100% deductible. The IMPACT plan lets you invest in your business and your loan is 100% deductible immediately. Both of the other websites claim, “Wealthier Canadians commonly employ expensive tax accountants and tax lawyers to replace their non-tax deductible loans (houses, vehicles) with investment loans.” The other plans try to avoid this, we suggest not circumventing this step. The IMPACT plan creates sufficient value to hire expert tax lawyers to review your case, replacing your non-tax deductible loans with investment loans. In dealing with CRA and tax law, we feel it makes no sense to try and cut corners. You must involve tax lawyers in your tax optimization plan.
5. Why haven’t I heard about this?
The Supreme Court of Canada’s ruling on the Lipson case came in 2009. Since then, the IMPACT plan has been implemented by tax planners across the country.
6. I keep hearing about Singleton and Lipson. Who are they?
These are 2 landmark cases for Canadian taxpayers looking to organize their affairs in a tax efficient manner.
John Singleton borrowed funds by way of a mortgage to invest into his law firm; CRA denied his deductions. Singleton’s case was found in favor of the tax payer and the Supreme Court made it very clear that the purpose and use of funds is what makes them deductible. Mr. Singleton’s mortgage interest is 100% tax deductible.
The particulars of John Singleton’s case can be found on the Supreme Court of Canada’s Decisions Page –
CLICK HERE
The Lipson case did not have the desired outcome for the taxpayer and the Supreme Court ruled in favor of CRA. This is important for the IMPACT plan because of the wording the court used when handing down their judgment. Section 20(1)(c) and 20(3) are the sections of the Tax Act that allow an individual to deduct interest on borrowed funds; these were firmed and held up by the Singleton decision. However, the idea that GAAR (General Anti Avoidance Rule) could be applied to a transaction like Singleton hadn’t been seen by the Supreme Court until Lipson. The exact wording from the Supreme Court decision on Lipson says,
“"The Minister has failed to establish that the purpose of ss. 20(1)(c) and 20(3) have been misused and abused. The series of transactions did not become problematic until the taxpayer and his wife turned to ss. 73(1) and 74.1(1), in order to obtain the result contemplated in the design of the series of transactions which resulted in the taxpayer applying his wife’s interest deduction to his own income. " *emphasis added
"Singleton illustrates the proposition that there is nothing abusive in principle for a taxpayer to rearrange his or her capital (borrowed or non‑borrowed) in a tax efficient manner"
"There was no abuse of ss. 20(1)(c) and 20(3) of the Act. There is no reason why a taxpayer may not arrange his or her affairs so as to finance personal assets out of equity and income earning assets out of debt. "
This is pivotal for the IMPACT plan since we do not incorporate ss 73(1) or 74.1(1) into any of the planning. The rulings from the Supreme Court are quite clear that Canadians can re-arrange their finances in order to make their mortgage interest tax deductible, as long as it is done properly.
The particulars of the case for the Lipsons can be found on the Supreme Court of Canada’s Decisions Page –
CLICK HERE
7) Can I still do this if I don't currently have a company?
The purpose of interest being tax deductible is to encourage investment into the economy. If you currently don't have a corporation there are many ways incorporation can be beneficial and we would be happy to explore these options with you. If you don't currently have an active business or a holding company but are interested in switching your mortgage for a tax deductible investment loan please contact us and see if your financial situation can benefit from an IMPACT plan.
