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December 19, 2019 – Tax-Free Savings Accounts (TFSAs) have had great success over the past decade, but could use a tune-up, says a new report from the C.D. Howe Institute.

In “TFSAs: Time for a Tune-Up,” author Alexandre Laurin argues that after a decade in existence, there is now enough data and empirical analysis on TFSA use to assess the extent to which the product is reaching its policy objectives, and how it can be made even more useful. 

TFSAs were introduced 10 years ago to improve incentives to save by eliminating taxes on investment incomes. Since then, they have experienced phenomenal growth. “After only eight years of existence, the fair-market value of all investments in TFSAs reached almost $233 billion by the end of 2016. By comparison, this is about 20 percent of all assets held in Registered Retirement Savings Plans, Registered Retirement Income Funds and Locked-In Retirement Accounts,” writes Laurin.

This growth in assets reflects the strong growth in the number and share of taxfilers holding a TFSA. Laurin notes the strongest growth in popularity occurs at younger ages, with one-in-two 25- to 34-year-olds holding a TFSA. This is just shy of the 65-and-over age category, the most popular age category with 57 percent. “Interestingly, younger individuals are drawn to TFSAs at a rate fairly similar to that of older individuals,” says Laurin. “This is in stark contrast with RRSP utilization.”

According to Laurin, the data shows TFSAs are partly used as a tax-efficient vehicle for long-term capital accumulation, widely used for decumulation of retirement wealth in old age, and are popular among younger Canadians to save for both near-term major purchases and achieve long-term saving goals.

To build on these early successes of the TFSA program and encourage continued growth, the report recommends:

  • Making it possible to buy life annuities within a TFSA to encourage individual protection against longevity in retirement;
  • Permitting a surviving spouse to utilize the unused TFSA contribution room of the deceased spouse, within limits;
  • Creating a new Tax-Free Pension Account to induce a greater number of younger and low- to mid-income workers to save for retirement on a tax-effective basis; and
  • Resolving Canada–US tax issues to improve the operation of TFSAs.

Read the Full Report

For more information contact: Alexandre Laurin, Director of Research; or Nancy Schlömer, Communications Officer, C.D. Howe Institute, phone 416-865-1904 ext. 0247, email: nschlomer@cdhowe.org.

The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada's most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.