RRSP investors are limited by the “Qualified Investment” rules. These rules restrict the types of investments that one can hold within their RRSP. With some exceptions, asset classes such as Infrastructure, Private Debt Funds, Shares of Private Companies (including Venture Capital investments), and many Hedge Funds cannot be held inside of RRSP. This is unfortunate for many reasons.
- Large Pension Plans such as the Canada Pension Plan Investment Board1, OMERS2, and The Ontario Teachers’ Pension Plan3 are actively adding these asset classes to their portfolios.
- Many of these asset classes are inefficient for tax purposes. A business owner investing in a Private Debt Fund in a Corporate investment account would pay a very high rate of tax on the income earned by that fund.
- Many of these strategies have very long time horizons. RRSPs are ideal for these types of investments as most investors do not plan to withdraw from the accounts until the mandatory dates.
A Personal Pension Plan (“PPP”) is not restricted by the Qualified Investment rules. While there are still some investment restrictions (e.g. the “Connected Person” test), PPPs have a significantly broader range of investment options than a standard RRSP. This allows an investor to personalize both the Asset Allocation as well as the Asset Location to optimize their after tax result (more on this in a future article).
In order to truly benefit from the many opportunities available through a PPP, an investor should work with a Professional Advisor who has both access, knowledge, and experience in working with alternative asset classes. A Professional Accountant should also be engaged to design an ideal tax plan which can be used as a template when choosing the Location of each investment.
Personal Pension Plans (PPPs) require Plan Administration, Trustee and Actuarial services not provided by Richardson GMP Limited to be successfully implemented. We strongly suggest that clients obtain independent tax and legal advice prior to implementing a Personal Pension Plan strategy. Richardson GMP Limited is a member of Canadian Investor Protection Fund. Richardson is a trade-mark of James Richardson & Sons, Limited. GMP is a registered trade-mark of GMP Securities L.P. Both used under license by Richardson GMP Limited.
All material has been prepared by Nicol Sanchez Wealth. Nicol Sanchez Wealth is an investment advisor team or Investment Advisor at Richardson GMP Limited. The opinions expressed in this blog are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP or its affiliates.
Richardson GMP Limited, Member Canadian Investor Protection Fund.
Richardson is a trade-mark of James Richardson & Sons, Limited. GMP is a registered trade-mark of GMP Securities L.P. Both used under license by Richardson GMP Limited.