People maxing out TFSAs “in virtual free fall;” new $10,000 contribution limit will disproportionately benefit those of higher income and wealth
OTTAWA--Even before the Conservative government increased the contribution limit for Tax-Free Savings Accounts, the proportion of people maxing out their TFSAs had dropped dramatically from 64 per cent to under 18 per cent. Moreover, participation and maximization patterns by age and income suggest that asset shifting and income splitting are the primary sources of contributions rather than new saving, a new Broadbent Institute study has found.Read more
Budget 2015 is, surprise, primarily a political document that extolls the government’s record and highlights tax cuts, but does almost nothing to deal with rising inequality or to shape the trajectory of the struggling economy.
As expected, annual contributions to Tax Free Savings Accounts are to be almost doubled to $10,000 per year, which will cost over $300 million in lost annual revenues within five years. The increase will eventually all but eliminate taxation of investment income, to the primary benefit of the very affluent earning more than $250,000 per year who collect almost half of all capital gains and dividends subject to tax.Read more
OTTAWA—Executive Director Rick Smith will be in Ottawa to react to the 2015-16 federal budget. The budget is widely expected to contain measures that will exacerbate economic inequality, including family income splitting and the doubling of TFSA contribution limits.Read more
1. Family Income Splitting
The federal government plans to spend about $2-billion per year on family income splitting that will mainly benefit high-income, traditional families with a stay at home spouse, to a maximum amount of $2,000 per year. There is no benefit at all from income splitting for single parents, or for two parent families in which both earners are in the same tax bracket, including the middle and bottom income tax brackets; these families with children under 18 represent over half of all families that are the apparent target of the scheme, according to the Broadbent Institute study, The Big Split. Meanwhile, the large savings will go to families with one partner in the top tax bracket and a stay at home spouse with a tax rate of zero. This big pre-election tax cut will directly increase income inequality.
Rhys Kesselman / iPolitics
The federal government has delivered on the first of its two major tax promises from the 2011 election campaign. Income-splitting has been extensively assessed and widely criticized for its revenue cost, its tilt toward higher-income families, and its failure to accomplish anything beneficial for the economy.Read more