Higher TFSA limit offers little to middle-income Canadians: Report

Only 17% maxed TFSA out in 2013



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OTTAWA – The Harper government’s recent move to raise the contribution ceiling on tax-free savings accounts offers little to benefit low- and middle-income Canadians, a new analysis of federal tax data has found.

The study, released Monday by the left-leaning Broadbent Institute, comes after the government nearly doubled the maximum annual TFSA contribution limit to $10,000 from $5,500. The Conservatives made good on an 2011 election promise with the April change, effective this year.

The report, however, said under the $5,500 yearly cap, there had already been a steep drop in the number of people who maxed out their TFSA contributions.

Maximization rates were higher for people in the upper income categories, says the study, written by Simon Fraser University economist Rhys Kesselman.

The research was released as politicians clash over what could become a pivotal ballot-box issue in the October election: how best to help Canadians save for the future.

The debate over TFSAs, in particular, has been central in the fight to woo voters in the so-called middle class.

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Kesselman, whose past research helped build a foundation for the government’s initial introduction of TFSAs six years ago, found in this latest report that 62 per cent of Canadians eligible for a TFSA had yet to open one by the end of 2013.

His number crunching of Canada Revenue Agency data also revealed that of all the people who qualified for TFSAs — but didn’t necessarily have one — only about 6.7 per cent had maxed out in 2013.

For those who actually held a TFSA in 2013, only about 17 per cent had reached the contribution limit.

Kesselman said that among those eligible for TFSAs with annual incomes below $60,000, only five per cent hit the ceiling.

By comparison, the maximization rate was 31 per cent for those with incomes higher than $250,000.

“This study demonstrates that raising the TFSA limit to $10,000 will yield disproportionate benefits to the highest earners and wealth holders, and that this tilt will mount over time,” he wrote.

The New Democrats and Liberals have promised to eliminate the Tories’ TFSA expansion and bring the limit back to $5,500. Both parties charge that raising the maximum primarily benefits wealthier Canadians.

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The Conservatives have defended their TFSA enhancement, saying everyone will benefit.

Finance Minister Joe Oliver has said people with yearly incomes of less than $80,000 accounted for more than 80 per cent of all TFSA holders in 2013.

In his report, Kesselman challenged such assertions.

“Contrary to the government’s messaging, all the evidence indicates that the increase of the TFSA contribution limit to $10,000 will benefit only a very small proportion of Canadians,” he wrote.

The TFSA expansion introduced by the Tories was watered down from its earlier pledge. The government decided against allowing the higher contribution ceiling to continue to rise with inflation, which will reduce its cost to federal coffers.

But even with that adjustment, the parliamentary budget watchdog has warned that expanding the limit will lead to a significant, long-term fiscal burden on the government.

The parliamentary budget office has also noted how TFSA expansion will help some Canadians more than others, stating in an April report that “high wealth and older households are projected to receive relatively larger benefits than lower net worth, younger counterparts.”

Don’t overlook this TFSA withdrawal rule »

11 comments on “Higher TFSA limit offers little to middle-income Canadians: Report

  1. No surprise here. Most middle class families do not have $10K of after tax dollars per adult to invest in TFSAs. This is purely a gift to the upper middle class and the upper classes, neither of whom need further tax shelters for their money.

    Not that my and my husband’s TFSA room isn’t maxed, but I would much rather have a smaller TFSA account and either lower tax rates for those who truly could benefit from that reduction or increased government revenues in order undo some of the incredible damage Harper has overseen over the past number of years.

    As it stands, we take all of our “tax savings” along with our monthly UCCB Harper Bribe for two kids under six and donate it straight to the NDP. Here’s hoping that this investment will pay of in October.


  2. Most Canadians are so clueless when it comes to finances and investing that they are not so in debt and that is why they can’t put anything close to $5,500 to $10,000 a year per person.

    I know many middle class Canadians that have extra money for $2,000 to $3,000 a month mortgage payments, property tax bills, utilities, insurance etc. for rental properties and cottages, vacation properties, bigger primary residences but they can’t save $500 or $800 a month for their TFSA contribution and $500 to $800 a month for their RRSP contribution.

    They think that buying real estate makes them be middle class for now and wealthier tomorrow. This is why Canadian seniors are now declaring record personal bankruptcies. They have all this debt and an illiquid, high cost, tax, expense asset that produces no real income in retirement but eats away at more money.

    The NDP is a tax and spend party, they don’t cut taxes. If they ever did cut taxes, they make you pay double, triple what you think you saved. It is your holes you guys dug yourself in and they can’t save your overextended, debt ridden ways.


    • Correction to my comment above, Canadians think they are not so in debt but they are. In Canada about 70% of all Canadian’s personal debt is mortgages. Get it people!


    • You know many middle class Canadians with 2-3K/month mortgage payments? I think you misunderstand the definition of middle class.

      Look, I’m a not particularly good with money. Yet, we paid off our mortgage in our 30s. My husband and I are about to hit 40, and we have zero debt. We max out our RRSPs, RESPs, and our TSFAs. Because we make a good income, and it ain’t too hard to save money when you’re making over 150K a year with a family of four. You don’t pat yourself on the back for saving money in that income range. You do look like an idiot if you have an empty retirement account and a $3000 a month mortgage instead.

      However, that’s not a middle class family in Canada, is it? People making twice the median household income are not middle class.

      As for the NDP being a “tax and spend” party, that’s not born out by the data. That being said, this country could use some taxing and spending at the moment. I’d vote to increase my own taxes, and I’m not even in the highest tax bracket as it stands now. I’d prefer a stronger social safety net for all then an extra few hundred dollars a year to waste on some technology gadget.


  3. We maxed up our TFSA accounts this year, but only because we had inheritance money to deploy and it was important to shelter as much as possible from taxes. Next year’s contributions will also come from this pot of money earned by our parents.

    As folks in our mid-50’s and counting down to retirement in about 4 years, we are taking every opportunity to shelter our cash – but we don’t have enough money available from our own earnings – that pays for the day to day expenses for the most part. We keep our emergency savings in a laddered GIC structure in a TFSA account, and the rest of the TFSA money is in an ETF portfolio for longer term earning options.

    We are not using my available RRSP contribution room at all because the long term tax benefits are non-existent at my income level. TFSA is definitely a better option for my situation.

    I definitely like the TFSA option and was happy to see Canada open up this opportunity finally – but in reality, it is not utilized well by the average consumer. People need to know that it is not just a ‘savings’ account with low interest. Just like an RRSP it is a registered, tax-sheltered account that can include all forms of savings and investment products. I have a well diversified ETF portfolio earning good income that is tax sheltered – much better earnings than a basic savings account.


    • HeidiPG, it is a responsible decision putting as much money as you can into TFSA’s. Getting rid of debt, even 2.5%, 3.0% mortgages too. You are right, most average Canadians are not financially informed and literate which is a shame and disservice.

      Low interest rates should not be an excuse to be foolish with people’s money by not saving, investing and going deeper into debt that will force now 10% of all personal bankruptcies to be from seniors. It is really sad how Canada used to be a nation of good savers just 25 years, 15% to 20% annual savings rates and now we are lucky if we are at 3% to 4% annual savings rate.

      Places like Vancouver I heard are negative savings rates, debt city.


  4. If I could save $10k/ year, am I a wealthy/rich Canadian?

    If you can’t save $10k/year, you are in deep trouble, go find another job.


    • Given that the median individual income in Canada is under $30K a year, that seems to be rather hollow advice. I assume that you have a fountain of high-paying full time jobs from which these hard working citizens may obtain a job which will allow them to save $10K a year after tax?

      People here seem to have no concept of what average incomes actually are in this country. The fact is that while the upper middle class and wealthy are doing pretty well for themselves the rest of Canada is going down the toilet with stagnating wages, disappearing benefits, and an increasing move towards part-time employment.

      What Canada needs is a strong unionization movement and a change of government, not tax breaks for the rich.


      • You are talking about the real world of lower skilled workers, the private sector bot public sector but government workers are getting big increases in pay, benefits, pensions, healthcare, sick days etc. for decades now.

        I know people with small and medium size businesses that showed me all the extra costs to pay for a worker like the rising electricity costs, WSIB costs, property taxes, higher minimum wage etc. etc.

        People have no idea that it is getting more and more difficult to make a profit and survive. If they keep beating these businesses over the head more and more with anti business and more socialistic policies of tax, spend us to death, more employers will have to cut workers and cut hours.


  5. Canadian middle class earners are making around $85,000 a year as a household. I know why they can’t save money or put much more in TFSA’s, RRSP’s, RESP’s etc.

    It is because they are all in debt to their eyeballs with Canadians having 1.84 trillion mortgages plus governments, 3 types in Canada but there is only 1 taxpayer taking at least 50% in all types of taxes.

    Most governments don’t fix anything but just take money out of our pockets. TFSA’s are a great idea and a welcome financial relief for a change.


  6. Sarah, $150,000 a year household income like you will not mean a few hundred dollars. If you look at past provincial, federal governments, make it thousands a year.

    I would not be surprised from past data that a 3% to 4% point increase or $4,000 to $5,000 a year less in your pockets. Now, over 25 years until retirement, that will add up to alot of money.

    Even with modest 4% to 5% annual investment returns in TFSA’s, this will be around $200,000 to $238,000 income taxes free. This will mean about a $10,000 to $12,000 a year in less annual tax free income at retirement.

    Your social safety net is coming at a high cost and will probably not be that great or that good as it is today as we have seen in other countries. I think people are too optimistic and unrealistic when it comes to governments promising too much.


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