Tax-Free Savings Account’s increased contribution limits good for Canadians
April 16, 2015
One of your best ways to save is about to get better. This will be of significance to many Canadians.
The federal government has hinted they will double the annual Tax-Free Savings Account (TFSA) contribution limit from $5,500 to $11,000. This was a prior promise of the federal government and was dependent on it being able to balance the federal budget.
The TFSA was introduced in 2009 and allowed Canadians to contribute $5,000 a year. That annual limit was increased to $5,500 in 2013.
Money held within a TFSA is free of any income tax and can be withdrawn at any time. Canadians currently have $131-billion invested in Tax-Free Savings Accounts.
It is expected that the new contribution limits for TFSAs will be detailed in the upcoming federal budget on April 21.
Suddenly the notion of an increased contribution limits to TFSAs has become a political “hot potato”. There are many different opinions on whether this is good economic policy or a political move by the Harper government that is trying to hang on to power.
Any encouragement for Canadians to increase their savings is a benefit. A recent Bank of Montreal study found that 40 per cent of Canadians believe they do not save enough. Higher TFSA contribution limits will be a benefit to those.
Some complain that this will only benefit the rich. In my opinion that is not a valid argument. The truly rich will not find it significantly beneficial to be able to add an additional $5,500 to a Tax-Free Savings Account.
Those who will benefit most are the hard-working middle class, who form the largest part of the Canadian population. They will use the TFSA to save for their children’s education, to purchase a house, plan for retirement and finally to pay for potentially expensive living accommodations in their final years if they move into a retirement home.
Some argue that the federal government is not financially strong enough to provide this extra tax-savings vehicle. Most Canadians feel that the government is not run efficiently and therefore can do more to improve their financial strength without restricting the ability of Canadians to save more on a tax-free basis.
Those are some of the financial arguments and opinions that have surfaced since the Minister of Finance, Joe Oliver, suggested an increase to the TFSA annual contribution limit. My thoughts are that the timing of this contribution increase could be closely tied to politics.
Canadians will likely go to the polls this coming October and the current Conservative government will use its power to offer Canadians advantages that hopefully will translate into votes. Generally speaking, during an election year governments go to the voters bearing gifts.
Increasing TFSA limits will be of significant benefit to many Canadians who might reward the government with their vote. Is that a bad thing? No, it’s reality.
Politics is politics regardless of the party or leader. That is the way the system works.
Our pending federal election has the potential for far more drama than normal. There is a political bombshell in the form of the Mike Duffy trial.
Perhaps the political motivation is damage control. Disgraced Senator Mike Duffy is on trial facing 31 charges over his alleged falsifying of personal claims and misstating his place of personal residence for monetary gain.
Some think the trial is actually more to do with the Prime Minister’s Office and Prime Minister Stephen Harper. Could the timing of the TFSA increased contribution limits be motivated by politics? Of course it could.
Politics aside, the financial issue is the TFSA. It is an excellent savings vehicle. Canadians will benefit from through increased contribution limits.
My vote is yes. Yes, the annual contribution limits on TFSAs should be doubled. It will help millions of Canadians.