Trudeau, Mulcair pledge to pull back TFSA contribution limit

Theglobeandmail.com
Sept. 11, 2015
By Jeff Gray

Just how much Canadians should be allowed to stash in their tax-free savings accounts is expected to become an election issue, after NDP Leader Tom Mulcair and Liberal Leader Justin Trudeau repeated promises this week to roll back a Conservative budget measure that nearly doubled the contribution limit on such accounts.

In interviews with CBC’s Peter Mansbridge broadcast this week, both opposition leaders confirmed they would scrap the Conservative move, unveiled in this year’s federal budget, to increase the limit for a tax-free savings account (TFSA) from $5,500 to $10,000.

“The doubling of it is irresponsible,” Mr. Trudeau said. “It’s only the wealthiest Canadians who have $10,000 laying around at the end of the year that they can put into that.”

The accounts allow taxpayers to avoid paying tax on the interest and investment income they receive from the money they have saved, which is contributed after tax. Critics say the accounts, and the recent hike to the annual limit, disproportionately help the wealthy.

After the April budget, government officials said that Canadians were free to contribute up to $10,000 to their accounts immediately. Now, if either Mr. Trudeau or Mr. Mulcair become prime minister, that limit might sink back down to $5,500, but probably not until next year.

Jamie Golombek, managing director of tax and estate planning with CIBC in Toronto, said any change to the $10,000 limit that follows a change in government is unlikely to take effect until 2016 or even 2017.

People should feel free to contribute to the $10,000 limit, at least for this year, he said, no matter what happens on election night, as rushing a change through Parliament before next year’s budget, while possible, isn’t likely.

“They certainly don’t want to deal with a legislative nightmare, of people acting on legislation that has been passed,” Mr. Golombek said. “I think there is no chance that they would change the limit for 2015.”

He couldn’t say how much take-up there had been for the increased limit: “Certainly, when speaking with clients that have the cash, pretty much everyone we’ve spoken to has done it. The message we’ve been telling our clients is, if you’ve got $10,000 sitting around in a non-registered account, there is no reason not maximize your TFSA.”

A survey of Canadians conducted for CIBC and released in May found that about 34 per cent of respondents either didn’t have the money to take advantage of the new higher limit, or had other investment plans. Only 10 per cent said they typically invest the maximum amount in their tax-free savings plans and intended to invest $10,000.

According to a report by Simon Fraser University professor Rhys Kesselman and released by the left-leaning Broadbent Institute, the existing TFSAs were underused even before this year’s increase in the annual contribution limit. The report says Canadians have nearly $600-billion in unused contribution room in their TFSAs, and 17 million eligible Canadians have not yet opened a TFSA.