How a tailored tax strategy from Novel Wealth outperformed conventional wisdom and paid off for this Big Tech engineer.
For top-tier talent in Canada's "Big Seven," tech companies, a liquidity event - like a bonus or RSU vesting - often triggers a paralyzing financial
tug-of-war.
Do you pay off your mortgage or feed your investment portfolio?
Arjun is a senior engineer earning over $250k and a client of Novel Wealth. We have changed his name to protect his privacy. Now, Arjun faced this exact dilemma when a $100,000 RSU windfall hit his account. With mortgage rates sitting at 4%, paying down debt felt safe. But as a long-term investor, he hated the idea of missing out on market growth.
Standard bank advisors would tell him to pick one. At Novel Wealth, we told him to do both!
The Strategy:
Arjun was stuck between "safe" and "smart." We deployed a strategy to convert his non-deductible mortgage debt into tax-deductible investment debt.
Here’s the simplified execution plan:
- Pay Down: We used the $100k windfall to prepay his mortgage principal.
- Re-borrow: Using a revolving line of credit, we immediately borrowed back $100k.
- Invest: The borrowed funds were deployed into a diversified portfolio managed by our partners at Q Wealth.
The difference isn't the debt level; it's the tax treatment. Because the borrowed money was used to earn income, the interest became tax-deductible in the eyes of the CRA.
The ROI: Optimization Over Elimination
By restructuring the cash flow, Arjun achieved a significant efficiency gain without changing his net debt.
- Interest Cost: ~$4,000/year ($100k x 4%).
- Tax Refund: ~$2,000/year (returned at tax time due to his marginal tax rate).
- Net Cost of Borrowing: ~2%.
Over time, this approach may improve Arjun’s long-term tax efficiency compared to simply paying down the mortgage, depending on market performance.
The Novel Advantage
This isn't the kind of advice you get at a retail bank branch. Executing this requires strict adherence to CRA rules regarding the "tracing of funds." It demands an expert advisor who understands complex compensation packages, not a mutual fund salesperson.
This is why more and more people like Arjun are coming to see Novel Wealth as the trusted advisors for tech professionals.
Key Takeaways for Tech Professionals:
- Don't Settle for Binary Choices: You often don't have to choose between paying debt and investing.
- Tax Efficiency is King: Interest deductibility effectively cuts your borrowing costs in half if you are in a top tax bracket.
- Execution Matters: This strategy requires strict adherence to CRA rules regarding the "tracing of funds." This is why having a team of CPAs and CFPs under one roof is critical.
Make sure your financial strategy is still working for you. Talk to the team at Novel Wealth; we are happy to review your plan and suggest improvements.
Our lawyers asked us to state the following:
When considering borrowing to invest, it is crucial to understand the potential risks involved. Borrowing to invest can magnify losses if the value of the investments declines, because the borrower remains responsible for repaying the loan and paying interest.
While this is a bona fide client story, the name has been changed to preserve our client’s privacy. The photo is for illustration only and is not a likeness of their family.
Novel Wealth is an owner and partner in the Q Wealth Partnership. Portfolio Management services are provided by Q Wealth. Financial planning services are provided by Novel Wealth. This example has been provided for information purposes only and is not intended to be relied upon as investment, financial, tax or legal advice. Please consult an independent legal or tax professional before implementing a planning strategy.
By Mark Davies, CFP®, CLU, CIM®. Partner: Novel Wealth. Portfolio Manager: Q Wealth Partners
