The future of the tax free savings account is on the line in this federal election.
The focus of the debate has been mostly on the decision by the governing Conservatives to increase the annual contribution limit to $10,000 from $5,500. Their two main opponents, the Liberals and the New Democrats, have vowed to roll back the increase.
But TFSA account holders have other worries. Some fear future governments will renege on their promise to never tax money inside the accounts — unlikely, because it would be political suicide.
Lifetime contribution limits are another issue — other jurisdictions with similar accounts already have them. Additionally, under the current system, withdrawals don't impact compensation levels for old age security or the guaranteed income supplement, and many wonder whether that will always be the case.
The Financial Post asked Canada's five leading parties, based on current polls, to explain their positions on eight different issues when it comes to the TFSA and its future.
“If the trade off is between sustainability of the TFSA and a lifetime limit on contributions, I would choose a lifetime limit on contributions as opposed to (a lifetime limit) on accumulation,” said Finn Poschmann, president and chief executive of Atlantic Provinces Economic Council, and one of the co-authors of a report in 2001 calling for the creation of a tax-free account for savings.
An accumulation limit would be of interest to some Canadians who have been extremely successful in their TFSAs taking high-risk gambles. The Financial Post has reported on accounts with as much as $1.25 million in assets in them.
Since the accounts opened in 2009, lifetime contribution room has increased every year and stands at $41,000 as of 2015. Although the Tories ended indexation of the plan to inflation, another 25 years at $10,000 would add an extra $250,000 in lifetime room.
Poschmann was in favour of the $5,000 increase to the annual limit, while others have suggested it only benefits the wealthy. One critic includes Rhys Kesselman, who co-authored that original report calling for the creation of the account.
Kesselman has called the increase in the annual contribution limit “a ticking time bomb” that will starve the government of future revenue.
One thing that is clear is the TFSA is here to stay in some form. Poschmann said that, “legislatively,” any government could retroactively tax money in a TFSA but to “fundamentally renege on the program would of course be bad politically.” All of the parties that responded to the Post questionnaire were clear that they wouldn't touch current TFSA holdings.
Meanwhile, with opposition to the $10,000 limit clear, the question becomes whether one should rush to their bank and make sure they have topped up their accounts for 2015 before the Tory increase is repealed — in the event they lose the election that is.
Jamie Golombek, managing director of tax and estate planning for the Canadian Imperial Bank of Commerce, said there is no need to panic about contributions for 2015.
“There's no chance,” he said, about any party changing the rules in time for 2015. “It's almost impossible for a new government to come in there and pass legislation changing it for the 2015 calendar year. Administratively it would be a nightmare. We don't look at date of contributions, they are done based on a calendar year.”
Golombek doesn't think anything will happen to unused past limits either. He thinks any rule changes will just affect contributions going forward for TFSAs.
“It's still possible if there are changes, they won't even do it until 2017,” said Golombek, who thinks it is conceivable some government could put a lifetime contribution limit on the TFSA. “A future government may decide the program is too expensive. They could stop future contributions, limit them or put a lifetime maximum contribution limit.”
(Party issued a statement and would not respond to directly to questions. Answers are extrapolated from that statement and past party decisions.)
“Unfortunately we won't be able to respond to your request, due to the important amount of demands we received,” a spokesperson said in an email.