Episode 238: Offset RRIF Taxes in Retirement With This Strategy

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What if carrying debt into retirement could actually reduce your taxes and increase your long-term flexibility?

Many Canadians are taught that being mortgage-free is the ultimate financial goal—but what happens when that mindset clashes with taxes, retirement withdrawals, and lost growth opportunities? If the Smith Maneuver or leverage-based investing has ever made you uneasy, especially when you picture retirement looming, you’re not alone. This episode breaks down why “good debt” doesn’t suddenly stop working when your house is paid off—and how intentional use of leverage can turn future tax problems into strategic advantages.

In this episode, you’ll discover:

• How investment debt can offset RRSP/RRIF withdrawals and potentially eliminate taxes in retirement
• Why starting the Smith Maneuver earlier creates more optionality and smoother income later on
• How combining RRSPs, non-registered investments, and leverage can increase net worth while reducing long-term tax drag
  

Press play now to learn how strategic debt, done right, can give you more control, lower taxes, and greater financial freedom over your lifetime.

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.

At Canadian Wealth Secrets, we help high-net-worth Canadians and entrepreneurs make confident financial decisions by replacing pressure with clarity. Whether you’re navigating insurance, estate planning Canada, or complex investment strategies, the goal isn’t more products—it’s a Canadian wealth plan built on financial literacy, tax-efficient investing, and systems you actually understand. From corporate wealth planning and salary vs dividends in Canada, to RRSP optimization, real estate investing Canada, and investment bucket strategies, we focus on aligning personal vs corporate tax planning with your long-term vision. By designing financial systems for entrepreneurs—covering legacy planning Canada, passive income planning, capital gains strategies, and business owner tax savings—we help you build long-term wealth in Canada, protect optionality, and move toward financial freedom Canada without sacrificing a modest lifestyle or future flexibility.

Transcript:

Jon Orr: 

In this episode, we are going to talk about how to think about structuring what you’re doing now to offset taxes in the future. You know, so you’re going to be kind of making maneuvers to adjust future self to pay, less tax on your registered retirement savings plan or your riff.

So you’re going to convert that RRSP into a riff. And we’re going to talk about strategies here on how to make that riff tax zero. $0 for you. Now, what you’re going to hear, though, is, a brainstorming session, myself, John and Kyle, we hit, we hit record, and we often do this. We hit record while we’re starting to brainstorm, things that we want to teach you.

And, we did that here today, and we after we brainstormed, we felt like this. This was your episode. This was what we, what we came up with because we thought we taught this idea very well. But we also gave you some kind of sneak peeks on what the brainstorming session looks like. So you’re going to hear a very raw, version of our conversation on how to pay zero tax on RSP withdrawals.

Kyle Pearce:

We’re going to start with the Smith maneuver, why the Smith maneuver is something that you actually want to be considering whether you’re a fan of debt or not. If you’ve ever worried about the Smith maneuver and what do you do with the debt once your house, your traditional mortgage is paid off. Like some people are worried, I have $500,000 I own my house. Now my house is paid off, but I still have $500,000 of debt sitting there, but I’ve got this investment bucket. So it’s like, I can pay this debt off at any time. Like, should I just pay the debt off now that the house is paid off? Is that the goal or whatever? When in reality we want to look at different phases of life and really in all phases in life, this debt could be helpful for you. So if you’re still earning income as a T4 employer, as a business owner, this debt is allowing you to get more money or more tax back. In a T4 world, you are gonna pay less tax on the T4 money that’s coming to you. So if you’re a high income earner, this debt is gonna be helpful for you. So, but again, what I was assuming, which maybe wasn’t clear is you’ve done the Smith maneuver. 

So you’ve fully taken your house debt. It’s now tax deductible debt because that 500, in a good world, it’s going to be worth more than 500,000 and it’s going to keep growing. So while you’re working, it’s likely that you’re gonna have a higher income than say when you get to your financial freedom age, maybe, maybe not, depending on who you are. So that’s helpful to write off. That interest gets written off against T4 income. You might still be utilizing your RSP to help bring your income down as well. If you’re a business owner, whatever you’re taking out of your business, this is again a way to slow drain more money out of your business. Cause remember the goal here isn’t to try to trap money in the business on purpose, retained earnings are there so we don’t have to pay tax. This is another thing people confuse. It’s like if you can get the money out tax efficiently, get it out. We want to help you to do that. So that’s great while you’re working, whether you’re T4 or whether you’re a business owner, it’s just giving you more flexibility there. Now you hit the next stage where you’re in quote unquote financial freedom, whether it’s called retirement for you, whether it’s called slowing down or whether it’s called just doing whatever you want with your time. 

Now you’re in a position where you may have been utilizing RSPs. If you haven’t, if you don’t have an RSP or a lira, or you don’t have any retirement account where you got money back upfront for the tax, you deferred the tax, you now got a tax problem because the money coming out is going to get fully taxed. The full capital gain, all of those things. When it’s coming out, what you can benefit from having this debt, is that you have interest, the investment still sits there. Every dollar I take out of my RSP is fully taxed, but if I have a dollar of interest to offset it, it’s actually zero tax. So that in a perfect world it’s like when you convert your RSP to a RIF you must pay a minimum you must pull a minimum amount out. A lot of people wait until they’re 71. That’s the latest time before you must convert. We’re actually advocating that if you do need money to come into your world, you’re not generating any other additional income anymore. You would actually want to convert your RIF as early as you’re financially free. So if you pick 55 as an example, you’re going to take a small amount out. But because you have interest here in a perfect world, your minimum amount you take out of your RIF, is gonna be equivalent to the amount of interest you’re paying and therefore there’s zero tax. You just freed dollars out of a bucket that you, so you saved the tax way back then. Now you’re saving the tax now and you’re still getting the growth of your investment fund over here.

Jon Orr:

Right, and it’s an important point just for people who are not thinking about all the pieces. Just be clear that you don’t start pulling from your tax-free savings account at this point. You’ve already earned tax-free there. If you took that money, you’re saying, don’t… Like I’m gonna, let’s say I reduce my debt and then it’s when it’s like, because in one way it’s like, if I’m always gonna have the debt, then it might not matter which bucket I pull from, because eventually I’m gonna pull from that bucket and I’ll get that tax relief. But it’s possible that I’ve reduced the debt in my retirement years and then therefore now my, you know, I wanna make sure I claim that credit when I can.

Kyle Pearce:

Yeah. Or you find a way, like, let’s say if you want to get really specific, you could say, Hey, listen, you pull out a bunch of money out of your tax free savings account. let’s say your tax free savings accounts doing really well. And you pull out a chunk out at the beginning of the year and you wait until January 1st of the following year, you get that contribution room back. So if you took 20 grand out for whatever reason, that 20 grand, you can do whatever you want with it. You get that room back. Just note that, unless that 20 grand is earning money somewhere else, you’re just losing out on the tax free growth inside the tax free savings account. So then the question becomes, does it make more sense to pull money from other sources? So this would be like, Hey, we could lean on that investment bucket. And here’s the advantage of if you did the Smith maneuver instead of just doing this right at retirement, is that the Smith maneuver bucket, hopefully, if let’s say you’ve had it invested for more than 10 years, or even seven years, if you’re earning 10% per year, rule of 72 says in 7.2 years, you’re going to double. 

The reason why you need to have enough growth in this investment account is because if let’s say you had a million dollars of debt and your bucket is now worth $2 million, and let’s say it was all capital gains, just to make things simple, that would be ideal. You’ve got two million there. Every dollar you take out, half of it is considered a capital gain and half of it is considered a return of capital. So one of two things either happen has to happen. You have to take that half dollar 50 cents and put it on the loan debt to, and that’s going to slowly pay that debt back because we don’t want to carry debt that we can’t write off. And if we don’t pay that 50 cents back, then technically you need to actually separate this and say, okay, 50 cents of this entire loan bucket is going to generate interest. That’s not tax deductible. So you could do that if you want to me, that just seems like a bonehead move and just a lot of work. So I’d take half of whatever I take out, I’m gonna put down on the debt. The other half is going to be considered capital gain. I only pay tax on half of my capital gain. So now I only pay tax on a quarter of the full amount that I took out. And that 25 cents or whatever that I’m adding to my income is gonna be taxed at my personal tax rate. So if you think of it this way, if I pulled out every dollar that comes out of the RIF, if I didn’t have something to offset that income with, that dollar is gonna get taxed twice as hard as a dollar of a capital gain coming out. And that’s because of the 50% inclusion rule.

Jon Orr:

Mmm, and my non-registered funds.

Kyle Pearce:

So what we’ve got here is an opportunity to essentially half the amount of tax that we have to pay. But remember I got to keep all the tax on the RSP upfront. So I got to keep all the tax upfront and now on the other end I get to only pay half of the tax later. But here’s the other nuance that’s important is that your actual net worth is higher as well. So your net worth is higher again because you used equity or you use leverage in order to build a bigger investment bucket that you would not have had had we not done this process.

Jon Orr:

Right, I got my investment bucket over here. Okay, I got my investment bucket over here. But I had that.

Kyle Pearce:

You borrowed at 5% and you earned 8%, 9%, 10%, maybe more, who knows, but over time. So again, there’s going to be dips. There’s going to be this, there’s going to be that, but because you did this process, you have a bigger net worth because you still have the same RRSP doing the same things that you would have done anyway. Now you’ve got more investments. You do have in like a debt, which you’re like, shoot, I hate this debt. At some point I should just pull money out and pay off the debt. But in reality, we’re saying, actually, let’s do this a lot slower. And you are going to over time, pay down a little bit of that debt. Because again, like I said, if it’s a 50 50 return of capital and capital gain, half of everything you take out, I would say is probably a better move is going to be just put it on the debt. And you’re just going to have to take out more out of this bucket.

Jon Orr:

So I gotta be intentional there. We talked about that just a minute ago, but I mean, gotta be intentional there. Like let’s say I sell some of the, let’s just say everything’s in the S&P 500 and I do some selling in my non-registered fund here. I’m gonna take the capital, like I’m gonna take that part that I’m now calling my income, or I’m just gonna take that part and say like, okay, there’s my money I need to live on this year, or this month or whatever it is. I need to be able to kind of, be diligent enough to say, okay, for tax purposes, 50% of that I should be sending over to pay down my debt so that I can keep reducing that.

Kyle Pearce:

Yeah, assuming that you’re adjusted cost basis to the total portfolio is a 50/50. This is the challenge. If you just did the debt today, like if I start the debt today, it’s all return of capital. So literally you, you’re not saving any tax. You’re just getting the money back. You borrowed and you have to put it back on the debt and you’re not creating cashflow for yourself. So we actually need time in order for a true RIF meltdown strategy to actually work.

Jon Orr:

I need to start this. I can’t just decide I want to have a board amount now to…

Kyle Pearce:

No, unless like, let’s say you give it one year and that in that one year you’re in 10%. Now it’s like you got a 90, 10, you basically got a 90 ish 10% thing. So every dollar I take out 90 cents of it goes back to the debt. 10% goes in my pocket or 10 cents goes in my pocket. That’s considered income. But if you’re trying to live off of that, that’s gonna be difficult. So in a way, Smith maneuver is almost the precursor, like it’s almost a necessary evil if you wanna do more than income smoothing. So income smoothing is just where you’re like, I’m gonna take a little from my RSP, I’m gonna take a little from here, I’m gonna do all these things. 

And then this gives us the opportunity as well to talk about and listen, some of you might be thinking, is this the only thing that I do for income? And the answer is no. It’s like you do have your tax free savings account. If you’re utilizing it, you do have your corporation with retained earnings in there that you could be again, selling some of the assets in there, or you could be using a leverage strategy as well. Like when we look at these growth buckets happening, leverage needs to be your friend here, but you have to fully understand why we’re using leverage. And we have to obviously have a really safe, confident investment strategy, which might also be why you may not want to DIY these investments. You may want to have an active manager who’s diversifying your portfolio for you.

Jon Orr:

Right. So when you’re saying leverage, you’re saying it would be beneficial if I had another source of available capital to pull from if I needed to pull money to live on in my golden years.

Kyle Pearce:

I would say it kind of comes back to like this idea of us with optionality and with just diversifying our buckets. So again, it’s like, could this work if you just did your RSP, you just did the Smith maneuver with a non-registered? It totally could. It’s just now you’re like, this is the strategy and it’s all gonna work perfectly. It’s hard to make everything work perfect, but to me, I look at it as, this is a good value add to my world. Ideally, like if you think about it, if I want to pull out 50,000 out of my RIF, or if I have to, maybe I have to because my minimum withdrawal rate’s 50 grand, well now I need 50 grand of leverage or interest in order for that to be a complete wash. Do I have to ensure that every dollar coming out of my RSP is tax free? 

No, I mean, like that’s not the goal here. In a perfect world we would do it easily if we could do it without stress without anxiety. Sure we would but you think about that 50 grand of interest that means you borrowed a million dollars. Maybe that’s fine. But now you think about this and go, okay, if I borrowed a million dollars, but I borrowed that million dollars over the last 10 or 15 years, as I was doing the Smith maneuver, that million dollars over here is probably going to be worth more than $2 million, which means like the longer we do this process, the more of every dollar that comes out of the non-registered account is going to be considered an actual income, a capital gain, which we’re only going to pay tax on half of it, which is fantastic. And then the smaller the amount that I have to pay back on this loan or again, you don’t have to pay it back, but you just can’t write off the interest on that portion, which to me just seems like a tracking nightmare.

Jon Orr:

Right, yeah. So if I go kind of rewind here, the original pebble here was that like, let’s say I wanna do the Smith maneuver or I am doing the Smith maneuver, but now I’m starting to worry about the debt that I’m just shifting. Technically it feels like I’m not really paying off my house because every time I make my mortgage payment, I take that available amount on my HELOC, I take that HELOC and I stick it in an investment, that full amount. So now I’ve just transferred debt from one space to another so I can get a tax relief or tax credit there. So I built this up repeatedly over time and every year that debt gets bigger and the interest is there. Now you were gonna pay interest on your mortgage anyway, but now you’re paying interest in this bucket over here but you’re not paying that down. You’re just making it in a way bigger. And so that can be worrisome 15 years from now is to say like, what is the, like if I project that out, that pile of interest I pay every year might not be affordable to me. But what we’re saying here is as we get closer to the retirement stage, sometimes you think, oh, I’m not gonna have a mortgage. 

I don’t have debt at retirement. I won’t have to worry about that. Having that debt is, there is some beneficial moves here because you’re going to, let’s say you have your RRSP that you would convert into a RIF and now you’ve got to withdraw some of the, you’re mandatory start to withdraw some of that money, but you might want to choose to do that earlier because every dollar you now withdraw from that taxable, you know, now it’s taxable, but at the loan amount on your, the interest amount every year on the loan is the same or more than that amount you’re pulling from the RIF. You’ve just like, in math, we would have said canceled out, you’ve almost written it off. And now all of a sudden that money you’re pulling from the RIF is tax free. And in a sense, you’ve just kind of the works out in the wash that you’re going to get a credit and all of a sudden, you’re not, you’re going to pay tax on it when you pull it out, but you’re to get that back. And so that is something to very much consider as you build a debt up with the Smith maneuver process is that you can use it to your advantage because you will essentially make something that you deferred in tax knowing that you had to pay tax later actually tax free in a sense.

Kyle Pearce:

Right, right. And I think too, something that you just said, which is important is that everything is scalable here. So it’s like, for example, if you have a million dollar mortgage at some point and now you have this million dollar borrowed bucket. So you basically did the Smith maneuver from start to finish. You could, if you wanted to continue to borrow more in anticipation of the strategy if you wanted to. But when you think of a million dollars and you go shoot, that’s gonna be like 45 or $50,000 in interest per year. For someone who is in a situation where they had a million dollar mortgage, their mortgage payment was higher than that every month. So in a way it’s like, basically what you’re doing is like over time you’re going, okay, like I’m basically gonna pay this quote unquote mortgage forever, but it’s going to do something completely different in the end. So if your mortgage is $200,000 and your bucket’s gonna grow to 200,000, if you fully converted your mortgage from start to finish into the Smith maneuver and you could choose to go further or you could choose not to, or maybe only do half because you’re like, I don’t feel good about having a full 200 sitting there, maybe it’s a hundred. 

But the reality is, that whatever that interest is, it’s likely because it’s only going to be an interest only payment every month, it’s likely that that interest payment is still going to be cheaper or lower than what you were paying in your mortgage payment every month for however many years you paid that mortgage. So when you kind of try to wrap your head around the cash flow piece, it’s like the thing you won’t get out of this is you’re not going to get like my mortgage is paid off. No more mortgage payment because you’re like, shoot, I do have a mortgage payment. It’s like my interest got to pay on this debt over here. But remember that interest, we get to write it off against other income. So if I’ve got $10,000 of interest debt that I had to pay throughout the year, it’s like, guess what? If I’m a T4 employee, I just got my income tax back. If you’re in a 50% tax bracket, you’re going to have 5,000 of it back. And what am I going to do with that 5,000? Maybe it still makes sense for me to use that money to help fill up the RRSP because I’m still working and I’m still in a high tax bracket. And you know that this process is going to ultimately lead you to more tax efficiency. That can make a whole lot of sense for a whole lot of people now behaviorally, whether you’re able to do it, doing it on your own might be hard to do, but I would argue that’s where having trusted advisors and trusted teammates that are basically helping you to remember why we’re doing what we’re doing and to ensure that we don’t make poor choices along the way.

Jon Orr:

Yeah. Who do you think this is best for?

Kyle Pearce:

I would say, I mean, I think it’s best for anybody with a mortgage, because I think that part’s easier. However, I would say if you didn’t have a mortgage, like maybe you’re a renter, I mean, if you own a primary home, I would say it’s definitely ideal for it because you’re going to have either a mortgage or you’re to have a lot of equity and we call it dead equity. So there any way you slice it, it’s more efficient to use that equity. Like we know this behavior, we know this rationally that it’s more efficient to take that equity and put it into an investment. Plus you’re getting a write off. If you’re not a primary home owner, then now we’re kind of going down the path of like, well, if you’re not a primary homeowner, are you earning enough income where filling up a tax or a RRSP does make sense? So do you own a business and do you want to utilize the RRSP for diversification purposes or are you going to go all in on a corporate investment strategy? So there’s no right or wrong. I would argue if your business earns a lot of money, like ours, we are in a higher tax bracket. So it makes sense for us to pull at least 135 a year just to break even on what the business is gonna pay anyway, which gives us our SP room, which means why not use it if you have money sitting around to knock it down.

Jon Orr:

Yeah, I was gonna say, and this is making sure we’re clear here, is that if we are thinking about that conversion into the RIF from the RRSP, is like you had to build that up. You’ve had to contribute to that RRSP as a source, and if you have the RRSP, but you also were doing the Smith maneuver along the way. it’s like, as a person, it’s like I’ve been actively and aggressively investing for my future because I’ve been putting RSP money away. I’ve been shifting this debt from my mortgage debt and then investing that in non-registered funds or non-registered accounts. I’ve been heavily doing these moves and now I’m worried about what the future might bring.

Kyle Pearce:

Right. And I would say too, like another piece that’s important is if like when it comes down to the RRSP, more and more, I see that most people nowadays, like given the incomes that most people are taking just for lifestyle reasons and such, it’s like more and more people, whether you have a business or not, probably make sense to utilize some bit of your RRSP at some time. Again, you can’t blanket it all, but if you have enough money, let’s say you have a business, you have a successful enough business where you have retained earnings, whether you choose to fully fill your RSP or not is probably not going to impact the fact that you probably still need to have a corporate strategy, which involves permanent insurance. So said another way, it’s like, it’s not like you’re ever in a scenario where if there’s someone who has a million dollars per year of retained earnings coming in, well, shoot, take out at least one 80 and fill up your RRSP, like at least why not just do it. 

It’s not going to affect anything like you, I don’t want to say it’s not going to affect anything. It’s not going to throw you off from having a great corporate investment strategy as well. So it’s sort of like to me, the more I see successful business owners with successful businesses and more and more retained earnings, the more I’m sort of thinking it makes more sense for them just to have that diversified strategy. Like, hey, take an extra 10 grand out or 12 grand out to fill up your tax-free savings account. It’s just gonna give you one other option as you go along. That’s going to be good for you in the long run. And Hey, if you can refinance your home and fill up your tax free bucket, that’s going to be even better, cause like now you get to win in this strategy.

Jon Orr:

Yeah, and I think if you think about the people, think because if your fundamental belief is that I want to continually make moves to create optionality, which I think is your, what I know about you is your number one fundamental belief is like how do I create optionality, but also how do I find the, we used this term before, the alpha. How do I find this secret that I really need to understand because I can then create the alpha. I can create this gap that I can take advantage of or I can find this extra amount that we said before is like you actively are looking for discounts where discounts might not exist. And I think when you think about the person who would do a move like this or want to go down a move like this, we do have to have that thought that I’m gonna make moves like I’m gonna pay myself more for my corporation to maximize my RSP contribution because down the road that my RSP and my loan interest are gonna offset each other. And that’s a move I wanna be able to make if it makes sense then. 

But I wanna be able to be in a position that it makes sense. And then like you said before, I’m gonna top up my tax-free savings account because I wanna be in a position down the road that I could pull from that bucket instead of that bucket when it mattered. Or I wanna be in a position down the road that I have leverage available over here because let’s say the market dips and I don’t wanna pull from any of those, then maybe I’ll pull from that to make sure that I have a wedge to kind of offset the gain so I’m not pulling from down counts when I could just use leverage here and pay interest instead of sell these assets that are lower and let them come back up. Like the optionality is the big winner here in terms of strategy, which is an ongoing strategy we want to share to listeners of this podcast.

Kyle Pearce:

I think the more we get clear on that, because what it does is I always talk about those two extremes, right? Where you’re all in or all out. Sort of like what everyone wants. Everyone’s seeking out the all in strategy or the all out strategy. Where in reality it’s like we’re trying to bring people to the middle and we’re trying to make it where it’s like you can like, you’re preparing yourself. So if you want to go a little further to one side or the other side, because it makes sense at that time, you’re now in a position to do it. Whereas if you go the all in or all out strategy, you get one of two types of people. You get the person who cannonballs in and they’re like, I’m all in and I’ve accepted it and I’m okay. 

Like these infinite bankers or I’m all in, like this is what I’m doing. This is how I do things. And it’s like, great. Okay. You’re all in, you’re doing something probably better than nothing. Or you get somebody else who sits on the sideline and they do nothing because now they’re like, I don’t know if that’s the right move. I’m not convinced that is the right move. And they’re probably right because the reality is we don’t know if it’s going to be the right move. It’s going to be a good option. That’s going to put you in a position where again, it’s like almost like connecting this idea. We say diversification of buckets. It’s like diversification of buckets and strategies is equipping. It’s like we’re trying to teach people to be able to cook their own fish here in terms of like you don’t blindly follow me. You’re gonna do what you need to do.

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