Tax-free savings plan contribution limit to double, Oliver suggests

Les Whittington / Toronto Star

OTTAWA—A confidential letter from Finance Minister Joe Oliver all but confirms that his April 21 budget will double the contribution limit for the government’s popular tax-free savings vehicle.

The current limit for cash going into a Tax-Free Savings Account (TFSA) is $5,500 a year, and Oliver indicated the Conservatives would fulfill Prime Minister Stephen Harper’s four-year-old pledge to allow Canadians to sock away more money.

“Canadians know that we stick to our commitments,” Oliver said pointedly in the April 6 letter to fellow caucus members.

Doubling the annual limit will boost it to $11,000 a year.

While popular with savers, TFSAs have prompted controversy over which segments of the population are receiving the most benefits from the plan, a debate that has only heated up in expectation of the contribution limit being doubled.

In the letter made available to the Star, Oliver provided Conservatives with ammunition to promote the savings plan.

“In 2009, my predecessor Jim Flaherty introduced TFSAs to help Canadians to save for a down payment on a mortgage, their kids’ education and retirement. Today, nearly 11 million Canadians enjoy earning interest-free income in their TFSA account,” the letter said.

TFSAs allow those aged 18 and over to accumulate investment income within the savings account without paying federal or provincial taxes on the income gains.

But in a report in February, Parliamentary Budget Officer Jean-Denis Fréchette concluded that allowing larger contributions to TFSAs will disproportionately benefit well-off Canadians.

“PBO estimates that higher-wealth households will be able to continue contributions, but TFSA contribution room limits will soon exceed the financial asset base for most low-wealth to middle-wealth households,” Fréchette said.

“Continued growth in individual limits offers no additional benefit for these groups. Consequently, TFSA benefits, currently balanced across wealth groups, will become increasingly skewed toward high-wealth households over time,” the PBO said.

Another recent study for the Broadbent Institute by public policy expert Rhys Kesselman said an increase in TFSA contribution room would “shift additional billions from tax revenues into the pockets of the already well-off.”

The New Democrats have voiced similar complaints. “Middle-class families are working harder and harder, but falling further and further behind with the current government,” NDP finance critic Nathan Cullen said in the Commons on Feb. 24.

“Two reports out today show that the government’s plan to double TFSA limits will cost tens of billions of dollars and yet benefit only the wealthiest Canadians.”

The Liberals’ Scott Brison has also said more TFSA room means more breaks for well-off Canadians.

Oliver’s letter seeks to debunk these arguments. He cites a finance department study that shows people of all ages and income levels put the maximum amount of savings into their TFSAs.

However, the study based on 2013 data shows that it is older Canadians as a group who are taking the most advantage of their TFSAs. Of those who “max out” their TFSAs, 71 per cent are over age 55, according to the finance department.

A 2012 finance department analysis explained this, saying: “Although many seniors are on a fixed income with a limited capacity to save on an ongoing basis, they have had more time to accumulate wealth and are generally well-placed to redirect their stock of existing savings to tax-assisted accounts such as the TFSA.”

The study cited by Oliver showed that, among those who contributed the maximum amount to their TFSAs, only 6.8 per cent were in the 35-44 age group and only 5 per cent were in the 25-34 age group.

Oliver said, overall, the finance department study shows the NDP and Liberals are against an increase in TFSA savings room that would help Canadians across the income spectrum.

There have also been concerns expressed about the long-term impact on federal and provincial revenues from the taxes foregone under TFSA. Current cost to the federal and provincial treasuries totals $1.3 billion, rising to $2.8 billion in 2020, Fréchette estimated.


71: Per cent of those maximizing their TFSA contributions who are over age 55.

5: Per cent of those maximizing their TFSA contributions who are 25-34 years of age.

$5,500: Current annual contribution room for TFSA.

$11,000: Expected annual contribution limit for TFSA after Oliver’s increase.

11 million: Number of people with TFSAs.