Canadian high-net-worth individuals allocate equal time to liabilities analysis as they do to investment planning during financial meetings today. The most advanced family portfolios borrow against existing securities to increase wealth compounding at tax-efficient rates exceeding their borrowing costs.
At first blush, this may sound like a banker’s game, but in practice, every one of these strategies succeeds or fails on the precision of its tax and reporting treatment. That is where SRJ Chartered Professional Accountants earn their place at the planning table.
Why the Rich Borrow Instead of Selling
Imagine an entrepreneur with a $5 million non‑registered portfolio returning 6% a year and a sudden need for $1 million to buy an adjacent property. If she sells investments, she will realise capital gains, pay tax up front, and lose the future growth on the assets she liquidates.
By contrast, a securities‑based lending (SBL) facility lets her pledge part of the portfolio as collateral, borrow at roughly prime minus 0.5 % to 1 %, and leave the full $5 million invested. Provided the spread between portfolio returns and interest cost remains positive after tax, she comes out ahead.
On paper, the math is compelling. In real life, however, shifting from “debt‑free is safe” to “debt‑as‑strategy” introduces three challenges that accountants must police:
- Tracing and deductibility. CRA is strict: interest is deductible only if borrowed funds can be traced to an income‑producing purpose. Perfect audit trails are essential.
- Loan‑to‑value discipline. Market drawdowns trigger margin calls. Forecasting worst‑case scenarios—and mapping cash or secondary collateral to meet them—is critical risk control.
- Rate volatility. Variable spreads look cheap when overnight rates are 4%, but a sudden 200‑basis‑point jump can turn positive carry into a cash drain. Modelling is non‑negotiable.
The Modern High‑Net‑Worth Credit Toolkit
Emerging Trends Driving the Shift
- Surge in private banking credit. Global players like Goldman Sachs plan to double ultra‑high‑net‑worth lending by 2027; Canadian banks are following suit, hiring “Managers of Credit Structures” to package bespoke loans.
- Alternative‑asset appetite. A 2024 Brookfield survey found 67 % of HNW investors intend to raise allocations to private credit, infrastructure, and secondary PE assets that can’t be tapped for quick cash. Borrowing against liquid collateral fills the funding gap.
- Post‑pandemic liquidity culture. Entrepreneur‑led families who built war‑chests in 2020–22 discovered that having a large, undrawn credit line is a powerful shock absorber.
Guardrails: Where Accountants Add Real Value
- Holistic cash‑flow modelling. Blend investment, operating, and borrowing flows into a single forecast so clients see the true net return.
- Stress‑testing. Run scenarios at +3% interest rates and −30% market values. If the plan fails under those assumptions, re‑size the facility.
- Independent validation of life‑insurance projections. Verify insurer illustrations and confirm that the policy can support the borrowing schedule even in low‑return environments.
- Documentation & audit‑proofing. Maintain meticulous substantiation showing every borrowed dollar traces to an income‑earning asset or business purpose.
Final Word
Strategic leverage is not about having debt; it is about using debt as a precision tool to widen the after‑tax spread between what your money earns and what it costs to access. For affluent Canadians who can stomach the complexity, the upside is meaningful: lower tax drag, uninterrupted compounding, and on‑demand liquidity for the next opportunity.
Yet credit’s benefits arrive only when the fine print aligns with each client’s unique tax profile and risk tolerance.
That alignment is the accountant’s wheelhouse. By integrating debt strategy into holistic planning, SRJ Chartered Professional Accountants help ensure that leverage acts as a scalpel—sharply effective, safely handled, and never leaving unintended scars on family wealth.
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