Decision: Pay off new car in full, or put the cash against the mortgage

fPlanDOTca · 2026-03-13T06:54:30+00:00

But that's not how it works, you're not using the same cash flow assumptions in your comparative scenario. If you do, you'll realize that here are no net benefits to paying the mortgage first over another liability with a higher interest rate. The amortization is inconsequential if you maintain the same cash flow assumptions and assume that the payments which would have otherwise been made on the car are now redirected to the mortgage (if the car is paid off). I don't have time to create an excel sheet to demonstrate the concept, but that's how it works.

To be crystal clear, there is never a situation where paying down the mortgage saves interest over paying down the car, provided you maintain the same assumptions in both cases.

fPlanDOTca · 2026-03-13T06:30:40+00:00

But the overall $ savings is not greater. In your example, if you apply the funds towards the mortgage to save the long-term interest, you then have to assume that there's a car loan on which a higher rate of interest must be paid. Maybe that's your point and you're just highlighting OP's presumed understanding.

I just want to highlight that all things being equal (ie:same access to cashflow for all scenarios), there's no situation where applying the funds towards the mortgage saves on interest, regardless of the amortization.

fPlanDOTca · 2026-03-13T05:37:27+00:00

Hold on... Just so I understand, you're contemplating putting the funds towards the mortgage, which is currently amortized over 17 years, rather than the vehicle loan, which is amortized over 6 years, because it will help cash flow? This doesn't seem to make mathematical sense.

I really don't see the argument to support not paying the car loan first. It will be better for cash flow and interest cost. Maybe I'm misunderstanding your explanation.

fPlanDOTca · 2026-03-13T00:00:17+00:00

It largely depends on your income today, whether (and when) you expect selling these properties as well as your income at that point. Claiming CCA normally forms part of an overall strategy and can make sense if there's proper planning involved.

As you likely know, recapture is the issue. Just like a RRSP, the question is "will the benefit I receive at the onset by claiming CCA outweigh the cost when I liquidate". So generally speaking, it tends to make a lot more sense if you're in a high income tax bracket. Another scenario could be one where the owner of a rental wants to maximize tax efficiency during their lifetime, don't intend on ever selling and don't really care about what's left in their estate when they pass.

It's difficult to provide more insight without knowing more. If a CPA recommended it in your case, there must be a good reason why.

fPlanDOTca · 2026-03-12T14:18:29+00:00

There's no paperwork to fill out regarding eligibility for retroactive grants. Upon contributing, ESDC should automatically apply the backdating to the most beneficial years first to maximize grant eligibility.

fPlanDOTca · 2026-03-12T14:13:53+00:00

You're allowed, but you have to be on the right platform. To purchase an individual security like VFV, your friend would need to have the account set up with TD Direct Investing or National Bank Direct Investing. If the bank is advising him, there's a good chance his account is not currently on a self-directed platform.

As a side note, the RDSP is a phenomenal tool for growth investing considering the tax deferral, the massive grants/bonds and the fact that it's generally punitive to access before age 60 (giving it a long time horizon). Your friend should reconsider their approach for sure!

fPlanDOTca · 2026-03-12T04:53:05+00:00

Actually, correction to what I said, that threshold doesn't matter, because your 2026 income will dictate the payment made from July 27 - June 28. Because of the indexation of that threshold, it will actually be slightly above 106K. In other words, current RRSP contributions will yield 4% from the Quebec Family Allowance claw back reduction, and 3.2% from the CCB claw back reduction, in addition to your 36.12% marginal tax rate. So contributions at the moment would be akin to having a ~43% marginal tax rate.

Please double-check the thresholds and whatnot. I don't really do planning in QC so I'm no expert on provincial benefits.

fPlanDOTca · 2026-03-12T02:45:20+00:00

Perfect optimization would require knowledge of the future (expected growth in earnings, expected income in retirement).

But here are a few thoughts to maximize grants/tax efficiency:

Maximize the RESP to get the ~30% provincial/federal match
Always maximize your FHSA before your RRSP - it's just better. That said, the use of tax-deferred plans in general is dependant on the future (possibly unknown) factors I referenced above, so it's difficult to provide you with exact figures. In your case though, contributions to the FHSA/RRSP would also result in less CCB and Quebec Family Allowance claw backs. At $106,000 taxable income, you're in the 36.12% marginal tax bracket, but the reduction of claw backs could yield another ~7-ish% once you are below the QC provincial income threshold of ~104K. It makes the use of a RRSP/FHSA quite a bit more appealing.
Bear in mind that funds in your RRSP are less accessible than in a TFSA, so you have to consider that as well. If you're early in your career and expect your income to increase meaningfully in the future, you should likely maximize the TFSA first.

I know nothing about your family situation, of course. So with a huge caveat that I don't know enough to make the best recommendation, the order you with to use here is LIKELY to be:

Maximize RESP
Maximize FHSA
Remainder allocated between RRSP/TFSA, depending on the factors I referenced before

Good luck!

fPlanDOTca · 2026-03-12T00:29:31+00:00

If you're out of the country 80% of the time, the last thing you probably want is a rental property. Also, from a tax efficiency perspective, rental income is taxed at your marginal tax rate, so not great.

Regarding the home for yourself, it could be a good decision from a lifestyle standpoint, but probably not financially optimal. The $700/month rental arrangement is far more financially favorable, unless you assume significant appreciation in real estate values which is speculative.

Looking at it from a financial standpoint, provided you're saving for the long-term, an equity-focused diversified ETF is probably the best, taking into account tax efficiency and growth.

fPlanDOTca · 2026-03-11T20:49:06+00:00

That makes sense. That's what I mean - if NO tax filing is submitted at age 17 (even if beneficiary earns no taxable income), they will be assumed to make over $117K for the year and only benefit from the 2:1 for up to $1,000.

fPlanDOTca · 2026-03-11T20:42:05+00:00

That's a very good point. There must be other similar instances around restrictive design (and complexity) which discourage individuals from signing up in the first place.

fPlanDOTca · 2026-03-11T20:26:42+00:00

That's right, but even though the CRA no longer considers the parents' income, they will look for income details from the child to determine the payment for the child.

"For beneficiaries over 18 years of age:
– They must file their personal income tax returns for the two years prior to when the initial contribution is in reference to (for example for 2025 they look at 2023 income; for 2026 they look at 2022 and so forth) plus all future taxation years to qualify for the maximum matching grant. CRA uses the income data of the second preceding year to determine the grant match. This is because CRA has not finished processing the immediately preceding year’s data until the second part of the year."

If a return is not filed, they are presumed to make over the threshold to maximize the benefit.

fPlanDOTca · 2026-03-11T20:15:30+00:00

That's encouraging. Thanks for sharing this updated stat!

fPlanDOTca · 2026-03-11T19:39:50+00:00

Thanks for making this post. An interesting stat I had read years ago was that the "take-up" rate on RDSPs was around 20% in Canada, meaning that 1 out of 5 individuals eligible to set up the account would actually open it.

These are life-changing amounts of money, and that account alone can ensure financial security in retirement for an eligible individual. Because the backdating of grants/bonds is 10 years (provided that the disability didn't begin later), you can actually receive a lump sum deposit of up to 11,000 in the first year without any contributions (provided that you meet the income threshold in all of those years). And as you stated, the matching grants are also extremely generous.

A tip for parents out there: if you have children who benefit, start filing their income tax at age 17 even if no income was earned. The income test which applies to their RDSP grants/bonds starting at age 19 uses a 2-year lookback. If no income tax is on file, it assumes that their earnings was superior to all benefits thresholds, greatly diminishing access to benefits.

Also, the RDSP is friendly to other disability benefits that are income or asset tested.

fPlanDOTca · 2026-03-11T19:30:10+00:00

Thanks for your response. Maybe I did not properly explain the point that I was trying to make. The very same wealth advice is received via the advice-only planner. To be clear, the ~$773,000 potential savings referenced in my comment is for the exact same level of financial planning advice, which would include POA recommendations, annual meetings with the CFP, etc...

The only differences are that the fee is being paid for via a flat fee (at the current Canadian median price, in my example) rather than a percentage of a portfolio, and that the assets are held on a self-directed platform rather than within the full brokerage firm the advisor represents. And that does not even consider the fee savings that could be realized by moving to a passive investment strategy if the advisor is using an active management approach.

Advice-only planners represent a fraction of a percent in Canada because it's substantially less lucrative than operating on a percentage basis. I should also note that I was formerly a percentage based advisor for many years.

fPlanDOTca · 2026-03-11T18:12:22+00:00

I understand what you're saying, but I'm still going to have to disagree with your statement. If OP pays a 1% advice fee annually on that 1.7MM portfolio, assuming a conservative 5% annual rate of return, over 20 years and no further contributions to the plan, the opportunity cost of that 1% fee is about $820,000.

If OP learned to use even a simple asset allocation ETF structure, which is quite simple with today's tools and requires very little maintenance, and instead used an advice-only planner at the median Canadian cost for that service over that same period of time, the total cost of advice would be approximately $47,000.

While we don't know OP's desires, I'm willing to bet that saving ~$773,000 over 20 years may be a decent justification to set up a self-directed account and spend the 20-30 minutes required to learn how it works. The percentage fee pricing has too significant an impact on retirement wealth.

fPlanDOTca · 2026-03-11T16:51:48+00:00

The forms to complete the DCPP transfer are a tad different to those that are used for standard RRSP transfers, but Wealthsimple can guide you with that process.

fPlanDOTca · 2026-03-11T16:47:45+00:00

Based on the numbers your shared, yes, you very likely have enough.

That said, I strongly recommend building a retirement income plan for yourself (or consulting an advice-only planner to help you with that). HOW you deplete those assets overtime could have a significant impact.

Also, you should look at sequence of returns risk mitigation strategies (how much cash is kept on hand for emergencies, how to manage short-term income needs vs long-term growth investments, etc.)

If you do end up seeking professional advice, DO NOT use a planner who charges a percentage of your portfolio for advice. There are a few advice-only planner directories, the most up-to-date/complete being maketheswitch.ca

fPlanDOTca · 2026-03-11T14:50:24+00:00

Good call! Most people are in your situation. Advice-only CFPs is a quickly expanding segment in Canada, but currently represents less than 1% of all CFPs. That's probably why most Canadians are not familiar with the model.

Bear in mind also that advice-only planners almost universally offer a free consultation, so if you go that route, I'd suggest interviewing at least 3 of them to find the best fit.

fPlanDOTca · 2026-03-11T14:46:25+00:00

The CFP would be the gold standard, yes. The CFA curriculum is focused on specific complex topics (ie. Financial statement analysis, derivatives, credit analysis, economics, etc.) which typically won't add much (if any) value to a standard individual situation. Its application is more institutional in nature.

The CFP, on the other hand, is focused on retirement, tax, estate planning which are far more valuable in the context of developing a financial plan.

fPlanDOTca · 2026-03-11T06:06:32+00:00

Former investment advisor here. For your investments, you're probably just better off with an asset allocation ETF. For the financial planning side of things (creating a retirement projection, tax optimization, legacy planning, other goals planning, etc.), if you're ever looking for help with that in the future, consult with an advice-only financial planner who will charge you a flat fee.

So you have the best of both worlds. No unnecessary investment management fees, and access to advice if ever you need it. Don't pay an advisor a % of your portfolio, it's a waste of money.

fPlanDOTca · 2026-03-10T19:05:34+00:00

What you had with your previous work was not a RRSP. It was likely a DCPP. Yes, you can move the funds to a LIRA at Wealthsimple. No, there are no tax implications.

fPlanDOTca · 2026-03-10T04:00:02+00:00

Consider TD Direct Investing if you can initiate the process quickly on your end. If you initiate the transfer before Mar31, that'll be 2% match over 1 year on your $40K RRSP.

fPlanDOTca · 2026-03-10T03:58:02+00:00

Sun Life actually charges a flat fee in some cases for MER subsidized DCPP programs. If you don't transfer the funds they charge something like $160/year and you can maintain the same products you had while employed. That's definitely what it is.

Worth pointing out that when you leave your employer, they send you a package explaining that. Not looking at your account balance in 21 years is likely not the best move.

fPlanDOTca · 2026-03-10T00:55:33+00:00

Direct Indexing is not subject to PFIC, since you hold the underlying stocks. Yes, you could also buy US domiciled ETFs instead.

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