Posthaste: TFSA, Canada’s favourite savings vehicle, needs a tune-up; here are four ways to make it better
Tax Free Savings Accounts are now 10 years old and over the past decade their growth has skyrocketed. Since their inception in 2009, the number of Canadians with a TFSA has grown from 4.8 million to 13.5 million in 2016, with the value of investments in these accounts reaching $233 billion, according to a new study by C.D. Howe Institute. Since 2013, contributions to TFSAs have outstripped those to RRSPs. In 2016, a total of $55 billion was contributed to TFSAs, compared to $42 billion to RRSPs. One in two tax filers, aged 25-34, hold a TFSA, almost as many as the 57% of filers aged 65 and over.
Laurin says that after a decade in existence, there is now enough data and empirical analysis on TFSA use to assess the extent to which it is reaching its policy objectives, and how it can be made even more useful.
Here are his four recommendations:
1. Create a new Tax-Free Pension Account in addition to the TFSA. These would allow for the same tax-free accumulations and withdrawals, but would be separate from an individual’s TFSAs. “TFPAs would be available to everyone although they would be particularly geared to the needs of low-to mid-income workers,” said Laurin. Ideally, workplace pension plans would offer a TFPA option, he said, which would provide a tax-prepaid option for retirement saving and benefit from the same creditor protection as pensions and RRSPs. Contribution limits should mirror those of RRSPs and registered pension plans.
2. Make it possible to buy life annuities with a TFSA.
3. Permit a surviving spouse to use the unused TFSA contribution room of the deceased spouse, within limits.
4. Resolve Canada-U.S. tax issues. Right now dual citizens may defer U.S. taxation on income earned within an RRSP until funds are withdrawn, but they must report TFSA investment income and possibly pay tax on it. Laurin says this discourages dual citizens from holding a TFSA.
Here’s wishing you a happy holiday from Posthaste. The newsletter will return Jan. 3.
The Canadian Taxpayers Federation releases its 2019 Taxpayer Naughty and Nice List in Ottawa
Judge-alone trial in Edmonton of Theodore Glade, who is accused of defrauding HSBC of $3 million while working at the bank between 2004 and 2008
Notable earnings: BlackBerry
Today’s data: Canadian retail sales, new housing price index, U.S. GDP
’Tis the season for giving, but apparently Canadians have been lagging on that front in recent years. The amount we give to charity has hit a 20-year low and falls short of what Americans donate, a study by the Fraser Institute finds. Less than one in five Canadian tax-filers (19.9%) claimed charitable donations on their 2017 tax return (the most recent data year), while almost one in four (24.9%) of Americans claimed donations. The total amount donated by Canadians, 0.54% of income, is the lowest since at least 2000, according to Fraser’s Generosity Index. Generosity peaked in 2006 at 0.78% of income. Meanwhile, American tax-filers donated 1.52% of their income to charities, almost three times Canadians’ contribution. In dollars, Americans gave an average of US$6,751; Canadians, $1,800. Rhode Island ranked the lowest average donation claim in the U.S., but it was still higher than the highest average claim of any province in Canada (Alberta at $2,703). Here at home, Manitoba not only has the highest percentage (23.4%) of tax filers who donated to charity among the provinces, it also donated the highest percentage of its aggregate income (0.80%). Quebec donated the lowest (0.24%).