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.

Behind the Headlines: Who’s Really Benefiting from Higher TFSA Limits?, authored by Rhys Kesselman, undermines the government’s key justifications for the increased contribution limit to $10,000 and exposes its misleading use of Canada Revenue Agency data. The government claims there is no evidence to suggest that people of higher income disproportionately benefit and that the higher contribution limit will benefit all Canadians, especially those earning less than $60,000.

In the first comprehensive analysis of TFSA maximization rates by age and income, Kesselman analyzed data released last month by the CRA in response to his Access to Information request.

Kesselman, who holds the Canada Research Chair in Public Finance with the School of Public Policy at Simon Fraser University, co-authored the 2001 study that laid the foundation for the TFSA introduced in 2009 with a $5,000 annual contribution limit. The government announced a new limit of $10,000 in the 2015 budget.

His new study assesses both TFSA “holders” and TFSA “eligibles” and dissects the data to reveal past behaviour patterns on use of the TFSAs. Because the CRA data is limited to individuals, Kesselman compared them to Statistics Canada’s Survey of Financial Security, which reports TFSA asset holding on a family rather than individual basis. Kesselman found that many TFSA contributors with low individual incomes are members of families with much higher total incomes.

“The new study cuts through the government’s spin to show that few low- and middle-income Canadians stand to benefit significantly from this policy. There’s already been a sharp decline in the number of people maxing out with the lower limit. Only at the highest income levels are the maxing out rates holding up,” said Kesselman, a Broadbent Institute Policy Fellow. “The study thus shows that the benefits of the higher contribution limit will flow disproportionately to the wealthy, encouraging asset shifting and income splitting rather than new saving.”

The study’s key findings include:

  • Most taxpayers who are eligible for a TFSA have yet to open an account. Fewer than two out of five eligible individuals had a TFSA by the end of 2013. 
  • Among TFSA eligibles with incomes below $60,000, only five per cent had maxed out their TFSA limits in 2013. In contrast, the maximization rate for TFSA eligibles with incomes above $250,000 was 31 per cent. 
  • In 2012, individuals with incomes below $20,000 held 17 per cent of all TFSA assets, but families with those incomes held less than four per cent. Individuals with incomes below $60,000 held 63 per cent of all TFSA assets, but for families in that income range the share was just 31 percent. For incomes of $150,000 and higher, TFSA holdings were 6.5 per cent of the total for individuals, but nearly four times that share, 24 per cent, when considering family income.
  • Of all TFSA eligibles, only about one out of 15 persons — or 6.7 per cent — had maxed out their limits in 2013.
  • Of all TFSA holders, only about one out of six had maxed out their limits in 2013. Despite the rapidly rising number of TFSA holders, the number who maximized their limits has fallen sharply — by nearly 40 per cent between 2009 and 2013.
  • The maximization rates for both TFSA holders and eligibles declined significantly between 2009 and 2013 for almost all income groups. For holders in all income groups below $100,000, the maximization rates fell by two-thirds or more. Only eligibles with incomes exceeding $250,000 had relatively stable maximization rates at about one-third.
  • Maximization rates were much higher at the top than the bottom end of the income spectrum — the rate for holders with incomes above $250,000 was about four times the rate for holders with incomes below $20,000, and the rate for eligibles with incomes above $250,000 was 10 times the rate for eligibles with incomes below $20,000.

“The federal government listened to Rhys Kesselman before when they created TFSAs, and they should heed the advice of the country’s leading authority on TFSAs now. His study eviscerates the government’s claim about how low- and middle-income Canadians are the big winners here,” said Rick Smith, Executive Director of the Broadbent Institute.

“What’s worse, a mechanism designed to boost additional saving is being used to minimize taxes and boost benefits from public pensions.”

The study concludes that consideration should to given to placing a limit on an individual’s lifetime TFSA contributions and/or a limit on how large their tax-free balances can become.

The study is available online at


For more information or to arrange an interview with Rhys Kesselman, please contact: Sarah Schmidt, Director of Communications, Broadbent Institute, sschmidt[at]broadbentinstitute[dot]ca or 613-857-2814.