TFSA popularity forces hand of Grits, NDP N

obody is going to win or lose this election based on their party’s position on the tax-free savings account (TFSA), but the program has become a minor issue midway through the campaign.

Earlier this year, the Conservative government pushed the annual limit for a TFSA contribution to $10,000; previously, it was $5,500. But both Liberal Leader Justin Trudeau and New Democrat Leader Tom Mulcair say they would keep the limit to $5,500. Both say the savings vehicle is a financial instrument that benefits wealthy Canadians. Yet neither would cancel the program.

That’s probably because TFSAs are used by all types of Canadians, regardless of political affiliation or financial status. There are wealthy Canadians using the program; there also are TFSAs owned by Canadians who aren’t wealthy.

The TFSA’s inherent appeal is its taxfree status. The income an owner earns within his or her account is not taxed. The bank interest the balance earns is not touched by Revenue Canada and any profits or earnings from investments made within the account also are not taxed. Since its introduction in 2009, TFSA use has taken off. The total market value of savings accumulated through a TFSA was $18 billion in 2009, but by mid-2014 it was $132 billion. In 2012, Canadians as a group contributed more to TFSAs than to their registered retirement savings plan.

Canadians have been warned for years they aren’t saving enough money, but the TFSA proves that, given enough incentive, Canadians can save.

This week, the Angus Reid Institute conducted a poll that found 67 per cent of respondents were opposed to the NDP’s and Liberal’s TFSA rollback plan. Of NDP supporters, 63 per cent favoured the increased limit. Among committed Liberals, 62 per cent wanted the higher limit. Oddly, support for the higher annual contribution limit was not unanimous among Conservative supporters, but 78 per cent agreed with the move. That both Trudeau and Mulcair would stop short of cancelling the TFSA is interesting. They don’t like the $10,000 contribution limit. Their rationale may come from Jonathon Rhys Kesselman, the Canada Research Chair in Public Finance who in February calculated the TFSA could cost the feds approximately $24.5 billion annually within 40 years, more if contributions were doubled.

But the fact TFSAs have been embraced by Canadians may be a factor in the two leaders’ compromise to keep the program intact, but with a $5,500 limit.