Full speed ahead for doubling the TFSA

TORONTO Any time a politician keeps his or her word it’s worth noting. But the Tories’ decision to maintain a pledge to double annual contribution limits to tax-free savings accounts should be celebrated.

Finance Minister Joe Oliver has all but confirmed the Conservatives will go ahead with a plan to double the current annual limit of $5,500 — something the party campaigned on during the last election.

Oliver and his party are flying into a storm of accusations from people who maintain doubling the TFSA will cost the government billions of dollars in the future. And a more dubious stance that it will really just help the wealthy.

Unveiled in 2009, the TFSA allows Canadians to contribute $36,500 over the lifetime of the plan. Even if annual contribution limits rise to $11,000, it’s hardly the type of plan that is going to do much for the top one per cent — they have much more sophisticated tax shelters.

The fact is 11 million Canadians use TFSAs, and contributions had grown to $33.5 billion as of 2012, surpassing Registered Retirement Savings Plan deductions of $32.4 billion for that year. The market value of TFSAs was $18 billion at the end of 2009, but by mid-2014 it had climbed to $132 billion.

TFSAs are attracting ordinary Canadians’ savings because they are far more flexible than RRSPs when it comes to withdrawal. Planners continually point to TFSAs as a better saving option for Canadians earning less than $40,000 per year because those people don’t benefit much from RRSPs, which lower taxable income. Despite all this, the pledge to double the contribution room ignited a firestorm over the past few months.

The parliamentary budget officer, Jean-Denis Frechette, suggested doubling the TFSA annual limit could cost governments $39.3 billion by 2080 — and that it would largely help the wealthy.

But of the $1.3 billion the 2015 TFSA currently costs in lost taxes, 51 per cent goes toward people earning between $32,175 and $72,300 per year, according to the PBO.

Much of the conversation seems to focus on so-called “lost” taxes, but TFSA contributions are already taxed so we are only getting a break on taxes when it comes to gains in TFSA. If that money is not saved, it might very well be spent.

With the average inheritance in Canada expected to be $100,000, according to a recent Bank of Montreal study, the TFSA could provide a tax shelter for ordinary Canadians facing a retirement with reduced private pensions and less government support.

Let’s hope Oliver keeps his word on April 21 and doubles the annual limit.