Episode 195: How to Decide When (and When Not) to Use Leverage To Build Wealth in Canada

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Is leverage always the golden key to building wealth—or can it sometimes hold you back?

Many entrepreneurs believe that using corporate or personal leverage is the ultimate strategy for unlocking cash flow and accelerating growth. But what happens when shifting debt from one pocket to another doesn’t actually improve your position? In this episode, we explore Omar’s story—an accomplished entrepreneur with multiple businesses, smart tax planning, and a well-structured financial system—who discovered that leverage wasn’t the answer he expected. If you’ve ever wondered whether you’re missing out by not tapping into leverage, this conversation may shift your perspective.

You’ll discover:

• Why using corporate-owned life insurance for leverage can backfire if the timing isn’t right.
• The crucial difference between leverage that creates growth and leverage that simply shuffles debt.
• How to evaluate which assets are truly best to borrow against—so you protect cash flow without triggering unnecessary tax or fees.

Press play now to learn when leverage can propel you forward—and when it’s wiser to keep that ace up your sleeve.

Resources:

• Ready to take a deep dive and learn how to generate personal tax free cash flow from your corporation? Enroll in our FREE masterclass here. 
• Book a Discovery Call with Kyle to review your corporate (or personal) wealth strategy to help you overcome your current struggle and take the next step in your Canadian Wealth Building Journey!
• Discover which phase of wealth creation you are in. Take our quick assessment and you’ll receive a custom wealth-building pathway that matches your phase and learn our CRA compliant tax optimized strategies. Take that assessment here.
• Dig into our Ultimate Investment Book List
• Follow/Connect with us on social media for daily posts and conversations about business, finance, and investment on LinkedIn, Instagram, Facebook [Kyle’s Profile, Our Business Page], TikTok and TwitterX. 
  

Calling All Canadian Incorporated Business Owners & Investors:

Consider reaching out to Kyle if you’ve been…

• …taking a salary with a goal of stuffing RRSPs;
• …investing inside your corporation without a passive income tax minimization strategy;
• …letting a large sum of liquid assets sit in low interest earning savings accounts;
• …investing corporate dollars into GICs, dividend stocks/funds, or other investments attracting cordporate passive income taxes at greater than 50%; or,
• …wondering whether your current corporate wealth management strategy is optimal for your specific situation.

Canadian entrepreneurs seeking financial freedom know that building long-term wealth in Canada requires more than just hard work—it takes a clear financial strategy. From tax-efficient investing and RRSP optimization to balancing salary vs dividends Canada, corporate wealth planning, and personal vs corporate tax planning, every decision impacts your path to financial independence. Leveraging permanent insurance, real estate investing Canada, and capital gains strategy can unlock new financial buckets while supporting debt management and legacy planning Canada. With the right corporate structure optimization, business owner tax savings, and investment bucket strategy, you can design a Canadian wealth plan that balances modest lifestyle wealth with financial vision setting, helping you achieve early retirement strategy goals. Whether it’s wealth management, estate planning Canada, or building passive income, Canadian wealth secrets lie in aligning entrepreneurship with smart corporate finance and retirement planning tools to create financial systems for entrepreneurs that last generations.

Transcript:

Today’s story is about Omar, a successful Canadian entrepreneur who’s built not just one, but several operating companies in the healthcare and technology space. From inter-company tax planning to shred credits to corporate-owned life insurance, Omar has seemingly done everything right when it comes to structuring both his business and his personal finances.

But here’s the twist. When we take a look at the leverage side of things, the strategy everyone talks about as the golden key to wealth, we’ll see why in Omar’s case, seeking out some corporate leverage, as you’ll find out here, actually doesn’t improve his position. So in this episode, we’re gonna unpack why sometimes leverage isn’t the answer. All right there, Canadian Wealth Secret Seekers. You’re here again with Kyle.

And I literally just got off the call with Omar. Now that’s not his real name and we’re gonna modify some nuances here because of course we want to protect everyone’s privacy. But this call was fantastic. Omar is in his early seventies and he’s still rocking it as an amazing entrepreneur. They’re having a lot of success with multiple companies. These companies are all very integrated, which is fantastic. And

He’s managed to pay attention to tax planning and just efficient optimization strategies along the way. When he reached out to us, you know, he was listing all of the different things that he has going on and the things he’s paying attention to through salary and dividends, through having lent money to the corporation and making sure that he pays himself back slowly over time so he can take less salary and pay less tax.

being able to expense the interest or actually write off the interest on his personal income from the loans he’s been using. And he’s even managed to set up some investments through an IPP for he and his spouse through their corporate structure. Like he’s got a lot of great things going on here. And as you know, we love diversification of buckets here at Canadian Wall Secrets. and I should also mention he has a permanent insurance policy, a high early cash value one.

And that was some of what he had questions about here today. So as we dug into the conversation, it became apparent to me that really what he was seeking was some specific wonders about two things. One was, how do I get more money from the corporation without triggering more tax? That seems to be one of the biggest questions and wonders people have. And he was wondering about potentially selling some shares in his business. So

I’ll address the share piece first for those who are in a similar situation. Now, because he does and he and his spouse have holding companies, however, some of his operating companies he owns the shares of personally, he’s able to take advantage of his lifetime capital gains exemption. So he’s looking at potentially sharing a portion of one or more of his operating companies and he was pleased to know that he’ll have up to $1.25 million that he

will be able to essentially keep exempt from capital gains tax if the sale is $1.25 million or more. And that’s per individual or per shareholder. So lots of a win there. Now, the hard part is he has to find those investors. So he’s going to put that on the sort of to-do list along the way. But the real question he had was around a permanent insurance policy that he has held inside

one of the companies in particular in the holding company. And this policy had been funding for quite some time. As I mentioned, he’s in his seventies. So trying to get a permanent insurance policy when you’re in your seventies is less favorable than doing so in your mid sixties or earlier. Those who are maybe, you know, 60 or 61, you might be saying, am I too old to be looking at permanent insurance? It’s actually not the case.

But once you get into your seventies, that runway, the time value of money is really what these policies are going to really be relying on. since the average age for a male in Canada is going to be only 10, 15 years out in the distance, doesn’t give as much time for the policy to be able to grow in the same way it could had we put it in place earlier. Now, luckily for Omar,

He had put this policy in place when he was a whole lot younger. This policy currently has a cash value of over $1 million. And he was informed this year that he could contribute up to, I think, $170,000 of premium, which I had advised could be a really good move for him, especially if he’s going to be looking at leveraging that policy for investment or potentially some cash flow. Now.

When we get into the weeds here, we went down and we don’t wanna just suggest people go and use leverage just for any old purpose. We wanna make sure that we understand what’s happening. And here’s what he explained to me. Explained to me that currently has about $2 million of debt owing. Now this is personal debt that he has taken and he has essentially lent to the corporation over time.

And therefore, he’s done this in order to be able to write off that interest. So think Smith maneuver style, except instead of putting it maybe into the stock market or real estate, he’s put it into his own businesses. Now his thought was, maybe I could leverage my policy, which has a cash value of about a million dollars. That would free up a million dollars. Leverage this at a personal level. And as I mentioned, there’s some nuances here. We’re going to want to make sure we pay guarantee fees. We’re going to want to make sure that

You know, a tax lawyer actually writes a legal opinion, an independent legal opinion to make sure that things are very squeaky clean here. So it explains exactly what’s happening and why he’s doing what he’s doing. Now that would free up a million dollars, but here’s the stick. He owes 2 million personally. And when you’re looking to take personal leverage in order to pay off other personal leverage, the issue we ran into is unless somehow we’re able to get a much better

rate on the loan against the policy, then this isn’t really going to be a transaction that’s going to put him any further ahead. If anything, in my opinion, it actually puts him maybe a little bit further behind because if he’s unable to re-borrow some of that other leverage he has, he’s now sort of stuck at the mercy of underwriters to decide if he’s able to ever get more leverage in the future. Policies are very great to leverage against.

Inside the corporation, he could get a loan from the insurance company. So he could just ask the insurance company, hey, typically 90 % of the cash value is what you’ll be able to leverage against your cash value. If we go to outside lenders, we’re looking at 100 % of cash value, except there’s an underwriting process. So rather than going and doing the underwriting process to leverage against the policy in order to pay off leverage over here that is secured against his primary home,

I would actually much rather keep that policy growing, doing its thing. And because we don’t have to pay guarantee fees to the corporation, we don’t have to pay for a legal opinion, we don’t have to do any of that other nuance. In this case, I think his move, his best move is to keep that policy in his back pocket for a time in which he actually requires additional cash flow without triggering additional taxes along the way.

I’ve worked with many clients here and actually there’s one couple that I was working with who really struggled with this idea when we were setting up their high early cash value policy that was owned by their holding company that, you what I had said to them is down the road when you’re ready to leverage, we’re not going to necessarily leverage against that specific policy. And the reason why is there might be an easier, leverageable asset on your hands. In the case for Omar,

And likely in the case for that couple, your primary residence is going to be the easiest asset to leverage against. Omar’s been doing this for over a decade, and he’s been writing off the interest because that money has been loaned to his company. He’s now able to have cash flow coming back through essentially taking some of that loan back. He’s unable to write off the interest portion on the portions that are coming back to him personally, of course.

But this is a great strategy. Now, there is the emotional side of things. And I think a lot of people really struggle when they know that there’s a loan against their primary residence. This is something that you really have to work with and get over in your mind to understand that actually if Omar is going to essentially refinance, really what it is is a refinance of the leverage against his primary residence and

putting it on the policy. What he’s done is he’s refinanced that over and he’s actually paid more in costs and legal fees and underwriting fees because that new loan is probably going to have some closing costs associated with it. Maybe the interest rates going to be the same. Maybe it’s not unless that interest rate is significantly less than what you’re currently paying. You’re probably going to be worse off in trying to leverage it over and then essentially at the end of the day being in the same exact

both having the same amount leveraged and just simply having it against a different asset. Now, this is a little bit different if let’s say you have no liens against your home, you’ve maybe paid off your mortgage, you don’t have a line of credit, you don’t have any of those things, and now you’re seeking out leverage for the first time, maybe you do lean on your life insurance policy and use the leverage against it. However, again,

there may be additional costs or additional hassles or loopholes or. Now, there may be additional costs or potential holes that you have to sort of jump through or hoops to jump through in order to do so. So we just wanna be looking at which place and which asset is going to be easiest to leverage against, and we’re going to seek out that leverage in that way. Ultimately, at the end of the day, it’s not about setting a plan now.

And then following through on that plan 10 years later, just because that’s how we thought things were gonna be played out. We wanna make sure that as we move along, we look at the information that’s been given to us, things change over time. Sometimes it’s easier to get leverage here than there. And we wanna make sure that we’re optimizing and thinking about the information that we’ve been given. So in Omar’s case, we’re gonna have him stick to what he’s been doing.

And we’re gonna hold off on using leverage against that policy until there comes a time where that cash is needed, either for investment, maybe as an opportunity to invest in the businesses, or potentially for some cashflow, should he have a higher than regular sort of income year where he doesn’t wanna pull more, I shouldn’t say income year, but expenses in a given year where he needs more income.

but he doesn’t wanna actually trigger more taxation. This is where leverage can be also very helpful at that time. But let’s keep that ace up our sleeves in this particular case instead of burning it now and essentially waiting to see how things play out. So now Omar’s story reminds us that even when you’ve built multiple successful companies and structured your finances carefully, not every strategy is the right fit.

Leverage can be powerful, but only when it creates true growth or tax efficiency, not when it simply shifts debt from one pocket to the other. That’s exactly why we created the four stage Canadian business owner financial wealth system to help entrepreneurs and investors just like you know when to push forward and when we might want to pause. If you’d like to see how this framework applies to your own situation, go ahead and book a 20 minute review call with us at

www.canadianwellsecrets.com forward slash discovery. And if you’d like to actually run our assessment so that you can get your own report, you can head over to canadianwellsecrets.com forward slash pathways and we’ll map out your strengths, highlight your hidden risks and help you chart the next stage of your financial journey. All right, Canadian Well, Secret Seekers, we will see you in the next episode.

And just as a reminder, this is not to be taken as investment advice. It’s for informational purposes only, and you should not construe any such information as legal, tax, accounting, investment, financial, or other advice. Kyle is a life-licensed and accident and sickness insurance agent and the president of Canadian Wealth Secrets, Incorporated. And we will see you next time.

Canadian Wealth Secrets is an informative podcast that digs into the intricacies of building a robust portfolio, maximizing dividend returns, the nuances of real estate investment, and the complexities of business finance, while offering expert advice on wealth management, navigating capital gains tax, and understanding the role of financial institutions in personal finance.

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