Harper to Double TFSA Limit to $10,000

[August1991]

The Conservative government announced the tax-free savings accounts in 2008, which allows Canadians 18 and older to invest up to $5,000 annually. Harper said he would double that annual amount to $10,000 if he is re-elected.

"The tax-free savings accounts have been a tremendous success. Just about five million Canadians now have a tax-free savings account … but we can all do more," Harper said.

The changes will not take effect until after the budget is balanced, which is expected around 2015.

CBC

This is a good policy, and it's good politics. It brings the TFSA back into the news. Anybody in Canada who manages their money well can save and benefit from this.

----

As many baby-boomers approach retirement, there will soon be a debate bewteen not the rich and the poor but rather between those who saved and those who didn't. Why should someone who delayed consumption, put off purchases to have a nest egg in retirement have to pay higher taxes to subsidize another person who lived pay cheque to pay cheque and never saved?

[bloodyminded]

CBC

This is a good policy, and it's good politics. It brings the TFSA back into the news. Anybody in Canada who manages their money well can save and benefit from this.

----

As many baby-boomers approach retirement, there will soon be a debate bewteen not the rich and the poor but rather between those who saved and those who didn't. Why should someone who delayed consumption, put off purchases to have a nest egg in retirement have to pay higher taxes to subsidize another person who lived pay cheque to pay cheque and never saved?

I understand the sentiment, but to be fair, there are plenty of Canadians who do not make enough money to save.

[Oleg Bach]

Tax free savings account? What's that? _ I thought that you paid the tax while earning the money that you saved? Once I had an RRSP put together by Actra - I did not even know I had it for the longest time - then after finding out I used it for car payments. I was genuinely surprised when they taxed you money when you removed it...Maybe it's like when you buy a "pre-used" USED car - It was taxed origninally when it was new and purchased the first time - Then they tax it again as if were new and never had been taxed...taxing is not very consistant in Canada.

[SF/PF]

This is a good policy, and it's good politics. It brings the TFSA back into the news. Anybody in Canada who manages their money well can save and benefit from this.

Just another Conservative tax cut that benefits the wealthy (people with an extra $5,000 a year) over the poor.

As many baby-boomers approach retirement, there will soon be a debate bewteen not the rich and the poor but rather between those who saved and those who didn't. Why should someone who delayed consumption, put off purchases to have a nest egg in retirement have to pay higher taxes to subsidize another person who lived pay cheque to pay cheque and never saved?

Are you suggesting that not being able to save for retirement is usually a choice, rather than an economic fact that many families have to face?

Also, have you considered that the more people have in TSFA's, the more money the government will be paying out in senior's benefits? Particularly those tied to income, since interest "income" generated in a TFSA is not considered income, people with vast amounts of savings and sizable monthly "income" will qualify as "low-income."

Probably the worst platform announcement of the campaign thus far.

[M.Dancer]

Just another Conservative tax cut that benefits the wealthy (people with an extra $5,000 a year) over the poor.

If you save $5000.00 a year, you are wealthy?

My, the bar is low...

[SF/PF]

If you save $5000.00 a year, you are wealthy?

My, the bar is low...

You're definitely wealthier than someone that can't save $5,000 a year.

And people that can afford to sock away $10,000 a year are definitely doing better than the vast majority of Canadians.

[Saipan]

And people that can afford to sock away $10,000 a year are definitely doing better than the vast majority of Canadians.

Some people do not spend on "entertainment" hockey, beer, etc. and save instead.

TFSA is GREAT. Specially for folks over 69 who couldn't contribute to RSP anymore.

[Moonbox]

You're definitely wealthier than someone that can't save $5,000 a year.

And people that can afford to sock away $10,000 a year are definitely doing better than the vast majority of Canadians.

My experience is the vast majority of people don't even understand what the TFSA is. Yes, it's likely that most people don't have $10,000 per year to invest, but it's not like the RSP and the people who do have $10,000 aren't getting tax deductions on their contributions. They're getting an account where they can invest in small portfolios of investments and have the gains/income from it not taxed.

I'm not exactly sure why it's a bad idea for the government to encourage people to save money and invest for retirement (which Canadians are notoriously bad at). If they don't they're going to end up costing the government just as much in support and pensions anyways.

My generation is not going to be able to pay for the baby boomer pensions the way they stand now.

[SF/PF]

My experience is the vast majority of people don't even understand what the TFSA is. Yes, it's likely that most people don't have $10,000 per year to invest, but it's not like the RSP and the people who do have $10,000 aren't getting tax deductions on their contributions. They're getting an account where they can invest in small portfolios of investments and have the gains/income from it not taxed.

In other words, pretty sizable tax cuts over time.

I'm not exactly sure why it's a bad idea for the government to encourage people to save money and invest for retirement (which Canadians are notoriously bad at). If they don't they're going to end up costing the government just as much in support and pensions anyways.

Encouraging people to save is a great idea, but as I indicated in my first reply, this increase in the TFSA will increase the number of people qualifying for GIS supplements to OAS payments. The reason is that the interest gained in a TFSA is not classified as income, and thus does not disqualify people from low income supplements to OAS.

For example, if someone invested $10,000 per year into their TFSA for 25 years at a return of 5%, they would have a balance of $501,134.54, which at the same rate of 5% would provide over $25,000 per year of interest "income" that wouldn't be classified as income for the purpose of qualifying for income supplements.

In effect, as more people move their savings to the TFSA vehicle, you will see MORE people qualifying for income supplements in the future. Not less. Which is to say, Harper's plan to increase the TFSA will increase spending and decrease revenue.

[Moonbox]

Encouraging people to save is a great idea, but as I indicated in my first reply, this increase in the TFSA will increase the number of people qualifying for GIS supplements to OAS payments. The reason is that the interest gained in a TFSA is not classified as income, and thus does not disqualify people from low income supplements to OAS.

For example, if someone invested $10,000 per year into their TFSA for 25 years at a return of 5%, they would have a balance of $501,134.54, which at the same rate of 5% would provide over $25,000 per year of interest "income" that wouldn't be classified as income for the purpose of qualifying for income supplements.

It's an interesting premise, but there are so many things wrong with it. First, the people who can throw $10,000 a year into their TFSA are likely those whose income is high enough to basically disqualify them for any significant supplements even with the TFSA income. Second, you're assuming that the TFSA will remain an option at the $10,000/year contribution limit for the next 25 years with no lifetime contribution limit, which is incredibly unlikely. The government, whether it be Liberal or Conservative in the future, would by all reason put limits to it.

Lastly, your calculations are exaggerated. The annuity @ a 5% interest rate (an exaggerated rate but I'll give it to you) leads you to around $475,000 and you're ignoring the impact inflation has on it. Assuming a 5% interest rate, you'd have to equally assume a ~3.5% inflation rate. Effectively those greedy bastards will maybe earn 1.5% on their investments and you can bet that 25 years from now that $25,000 in income is going to be worth maybe half that effectively.

Where the TFSA could potentially be a huge windfall for intelligent or wealthy investors I think is in equity and capital gains. Change that 5% a year in interest to an average of 8-10% capital gain on average and that's a pretty big deal. Once again, however, it's an impossibility that this would continue ad infinitum.

[M.Dancer]

And people that can afford to sock away $10,000 a year are definitely doing better than the vast majority of Canadians.

I strongly doubt that....

The average American (and I see no reason why Canadians are not more..)

Has after all expenditures $13,000...

http://www.creditloan.com/infographics/how-the-average-consumer-spends-their-paycheck/

The idea that most Canadians cannot sock away $200 a month is ludicrous

[SF/PF]

It's an interesting premise, but there are so many things wrong with it. First, the people who can throw $10,000 a year into their TFSA are likely those whose income is high enough to basically disqualify them for any significant supplements even with the TFSA income.

Sure, people that can afford to throw significantly more than $10,000 a year into savings will still not qualify for income supplements in retirement. What percentage of Canadian families do you think that makes up?

Second, you're assuming that the TFSA will remain an option at the $10,000/year contribution limit for the next 25 years with no lifetime contribution limit, which is incredibly unlikely. The government, whether it be Liberal or Conservative in the future, would by all reason put limits to it.

And money might fall from the moon, too. You can't reasonably evaluate a platform promise on account of what might happen in the future.

Lastly, your calculations are exaggerated. The annuity @ a 5% interest rate (an exaggerated rate but I'll give it to you) leads you to around $475,000 and you're ignoring the impact inflation has on it.

Plug it into a calculator if you don't believe me. I ran the numbers with an investment at the start of each (annual) compounding period. Also, 5% isn't really exaggerated given that you can get 3.5% in a simple 5 year GIC. Interest rates are going up, if anywhere.

At any rate, my point stands regardless of the interest rate; at 1% or 99%, increasing the TFSA limit will increase the number of people qualifying for low-income supplements. Whether I'm receiving $1,000,000 a year or $10,000 a year from my TFSA investments, it is still boosting my bottom line without affecting my qualification for low-income supplements. Other investments don't do that.

Assuming a 5% interest rate, you'd have to equally assume a ~3.5% inflation rate. Effectively those greedy bastards will maybe earn 1.5% on their investments and you can bet that 25 years from now that $25,000 in income is going to be worth maybe half that effectively.

What relevance do you feel inflation has to the simple fact that increasing the TFSA limit increases the number of people that will qualify for the GIS?

Where the TFSA could potentially be a huge windfall for intelligent or wealthy investors I think is in equity and capital gains. Change that 5% a year in interest to an average of 8-10% capital gain on average and that's a pretty big deal. Once again, however, it's an impossibility that this would continue ad infinitum.

Yes, obviously higher interest rates are preferable to lower. Still, irrelevent to my point.

[William Ashley]

CBC

This is a good policy, and it's good politics. It brings the TFSA back into the news. Anybody in Canada who manages their money well can save and benefit from this.

----

As many baby-boomers approach retirement, there will soon be a debate bewteen not the rich and the poor but rather between those who saved and those who didn't. Why should someone who delayed consumption, put off purchases to have a nest egg in retirement have to pay higher taxes to subsidize another person who lived pay cheque to pay cheque and never saved?

Some people have money some people don't. You need money to save. Some people arn't allowed to save - for example disabled individuals dependent on social programs arn't able to have more than a set amount --- so a savings account of this amount is really not applicable to them

Other people living under the poverty line likely arn't living to the same standard, and may take 10 or more years to save up that amount of money by scraping it.

Sure 10,000 isn't a lot.. but it gives people who have the money a little more. You have to ask though with the average Canadain in DEBT $100,000 what good does being able to save $10,000 do you if you owe $100,000

Most people are in DEBT not in surplus. Any money they are saving is being saved as a backup for hard times not retirement, many people use their house as a retirement asset or their "main asset" who have it,.. others live their entire lives in appartments.. or renting.. renters don't have that asset.

The fact is here that yes it is good for some people and it is good for others, but since the average canadian is indebt, it doesn't help the average canadian.

It is a policy for the well to do and debtless.

For the PM someone who lives in a FREE HOME... he is just out of touch with Canadians when he puts up tax savings for the wealthy while creating a public debt.

If this were suprlus with solid debt paydown it would be fine but with a broken federal government financially relying on taxes to pay its way NO, it is not sound policy to let the rich off unbalanced to any benefits to the poor, this is simply taking money from federal government and giving it to the rich, while the nation and the average Canadian is drenched in massive debt.

Bad policy for the average Canadian.

People need to pay their debt not save money while they owe - in mind of programs example if people have forgivable debts it is excusable to save if a given program such as student loans for instance forgives them from repayment if they earn under the poverty limit for a certian period of time.

There is a limit of poverty where people deserve to have every penny they have - while the rich do hit a margin of wealth where it accumulates, in some cases beyond personal needs. - This likely means that they are asking for more than they need or have massive amounts of social control.

I think that is an unbalanced society, but it is perfectly legal, but you shouldn't be giving them more advantages while the poor suffer, that is immoral and wrong. The government shouldn't be giving advantages to the rich at the cost of the federal fiscal position being as good as it can be. $5000 is pretty inconsequential for anyone but the middle class but RRSP's exist for retirement. It is absurd to allow people with extra money to have tax free income while people without it don't. Why even require an account.. why not just lower taxes..!!! damnit

It is just giving more money for the banks.. that is all it is the crook.

Lower taxes forget the accounts maybe people want their own assets or experiences instead of old age funds or funds in an institution that could fail. Why force investments? Why not let the people decide?

What about people who are terminal why force them to save for retirement if they are going to die in a few years at best anyway? Where are programs to give them the tax savings?

FORGET THE INSTITUTIONAL GAME.. KILL THE TAXES FREE THE PEOPLE PAY OFF THE DEBT... END THIS RICH AND BANK CORPORATIST POLICY BENT ON ENSLAVING AND INDEBTING AND BINDING PEOPLE TO THE MACHINE!

Edited April 7, 2011 by William Ashley

[GWiz]

Some people have money some people don't. You need money to save. Some people arn't allowed to save - for example disabled individuals dependent on social programs arn't able to have more than a set amount --- so a savings account of this amount is really not applicable to them

Other people living under the poverty line likely arn't living to the same standard, and may take 10 or more years to save up that amount of money by scraping it.

Sure 10,000 isn't a lot.. but it gives people who have the money a little more. You have to ask though with the average Canadain in DEBT $100,000 what good does being able to save $10,000 do you if you owe $100,000

Most people are in DEBT not in surplus. Any money they are saving is being saved as a backup for hard times not retirement, many people use their house as a retirement asset or their "main asset" who have it,.. others live their entire lives in appartments.. or renting.. renters don't have that asset.

The fact is here that yes it is good for some people and it is good for others, but since the average canadian is indebt, it doesn't help the average canadian.

It is a policy for the well to do and debtless.

For the PM someone who lives in a FREE HOME... he is just out of touch with Canadians when he puts up tax savings for the wealthy while creating a public debt.

If this were suprlus with solid debt paydown it would be fine but with a broken federal government financially relying on taxes to pay its way NO, it is not sound policy to let the rich off unbalanced to any benefits to the poor, this is simply taking money from federal government and giving it to the rich, while the nation and the average Canadian is drenched in massive debt.

Bad policy for the average Canadian.

People need to pay their debt not save money while they owe - in mind of programs example if people have forgivable debts it is excusable to save if a given program such as student loans for instance forgives them from repayment if they earn under the poverty limit for a certian period of time.

There is a limit of poverty where people deserve to have every penny they have - while the rich do hit a margin of wealth where it accumulates, in some cases beyond personal needs. - This likely means that they are asking for more than they need or have massive amounts of social control.

I think that is an unbalanced society, but it is perfectly legal, but you shouldn't be giving them more advantages while the poor suffer, that is immoral and wrong. The government shouldn't be giving advantages to the rich at the cost of the federal fiscal position being as good as it can be. $5000 is pretty inconsequential for anyone but the middle class but RRSP's exist for retirement. It is absurd to allow people with extra money to have tax free income while people without it don't. Why even require an account.. why not just lower taxes..!!! damnit

It is just giving more money for the banks.. that is all it is the crook.

Lower taxes forget the accounts maybe people want their own assets or experiences instead of old age funds or funds in an institution that could fail. Why force investments? Why not let the people decide?

What about people who are terminal why force them to save for retirement if they are going to die in a few years at best anyway? Where are programs to give them the tax savings?

FORGET THE INSTITUTIONAL GAME.. KILL THE TAXES FREE THE PEOPLE PAY OFF THE DEBT... END THIS RICH AND BANK CORPORATIST POLICY BENT ON ENSLAVING AND INDEBTING AND BINDING PEOPLE TO THE MACHINE!

ARRRQUUE!

PLEASE! Take me away before I have to agree with anything WA says...

[Moonbox]

Sure, people that can afford to throw significantly more than $10,000 a year into savings will still not qualify for income supplements in retirement. What percentage of Canadian families do you think that makes up?

Probably the same percentage of people who could afford $10,000 a year to contribute to their TFSA. People with usually a fair bit more than $100,000 salaries. How many people do you know are able to invest 15-20% of their after tax income???

And money might fall from the moon, too. You can't reasonably evaluate a platform promise on account of what might happen in the future.

It's no less reasonable than your balogna scenario where lower income seniors, who've been able to put away $10,000 per year for the last 25 years, somehow find themselves in a position where their income is so low they then qualify for supplements from the government. That doesn't make a lot of sense.

We can definetly evaluate the platform on the premise of what might/should/almost certainly will happen in the future simply by looking at the promise for what it is. This is a Tory pander to seniors. The Tories know that the percentage of seniors who vote is high, they know seniors are the main users of the TFSA and they know that most seniors won't have 25 years to accumulate balances in them. They also know, like any reasonable human being should, that they won't be in power for the next 25 years, or likely even 10-15 years for that matter, and that if it's such a terrible idea then subsequent governments will stop it before it gets to be a problem.

Plug it into a calculator if you don't believe me. I ran the numbers with an investment at the start of each (annual) compounding period. Also, 5% isn't really exaggerated given that you can get 3.5% in a simple 5 year GIC. Interest rates are going up, if anywhere.

Fair enough I ran it with no initial contribution. That was me just being nitpicky and contrary. A fault of mine.

At any rate, my point stands regardless of the interest rate; at 1% or 99%, increasing the TFSA limit will increase the number of people qualifying for low-income supplements.

Again, it boils down to your assumption that the people who can afford to invest $10,000 annually (the wealthy) all of the sudden become poor as soon as they retire.

[cybercoma]

What a great idea for those with enough money that they can save it.

[SF/PF]

Probably the same percentage of people who could afford $10,000 a year to contribute to their TFSA. People with usually a fair bit more than $100,000 salaries. How many people do you know are able to invest 15-20% of their after tax income???

So you think that the percentage of people that can afford $10,000 is the same as those that can afford $12,000, $15,000, or $50,000? I suppose anyone that can invest $10,000 can also afford to invest $1,000,000?

It's no less reasonable than your balogna scenario where lower income seniors, who've been able to put away $10,000 per year for the last 25 years, somehow find themselves in a position where their income is so low they then qualify for supplements from the government. That doesn't make a lot of sense.

\

I fear that you were right about most people not understanding the TFSA, and you are obviously one of them. People that have been able to afford $10,000 a year into their TFSA will be defined as low-income seniors provided that they didn't make significant investments in other places. Why? Because the interest generated in a TFSA is NOT income. Ergo, people with almost the entirety of their savings in a TFSA will have NO income outside of OAS and whatever private pension they may have.

We can definetly evaluate the platform on the premise of what might/should/almost certainly will happen in the future simply by looking at the promise for what it is. This is a Tory pander to seniors. The Tories know that the percentage of seniors who vote is high, they know seniors are the main users of the TFSA and they know that most seniors won't have 25 years to accumulate balances in them.

The TFSA is a far better investment vehicle for the young than the old. For seniors today, a TFSA is only marginally better than a standard savings account.

At any rate, the reason that its a bad policy now, let alone in 25 years, is that its a tax cut for people that least need help in retirement saving.

They also know, like any reasonable human being should, that they won't be in power for the next 25 years, or likely even 10-15 years for that matter, and that if it's such a terrible idea then subsequent governments will stop it before it gets to be a problem.

Even if it only lasts 10-15 years, it will increase the number of people receiving the GIS. It doesn't need to go on forever for that to happen.

Again, it boils down to your assumption that the people who can afford to invest $10,000 annually (the wealthy) all of the sudden become poor as soon as they retire.

No, it boils down to the simple fact that any money put into or generated from a TFSA is NOT income. Ergo, anyone who has the main source of their retriement funds in a TFSA is by definition "low-income."

My assumption isn't that these people are poor. Rather, I think its quite obvious that my criticism is that these people are NOT poor, but will be treated as such. I'm not sure how to make it any clearer. Go do some research on the TFSA if it still doesn't make sense.

[Scotty]

You're definitely wealthier than someone that can't save $5,000 a year.

And people that can afford to sock away $10,000 a year are definitely doing better than the vast majority of Canadians.

Woo hoo! Yay me!

[GWiz]

Woo hoo! Yay me!

4, 5, 6, years away, if ever? Too late for me to get an advantage from it... Meaningless...

[August1991]

Some people have money some people don't. You need money to save. Some people arn't allowed to save - for example disabled individuals dependent on social programs arn't able to have more than a set amount...

Trust WA to say something inadvertently wise.

An adult in Canada, someone from age 18 to 65, has about 47 years to get things right. Sure, we all make mistakes some times. With few exceptions, anyone born in Canada who is 65 and has not saved for their retirement deserves their fate.

Why should a 65 year old person who saved, didn't buy the latest Jap Junk or take the expensive vacation, have to pay money to his neighbour who was a spendthrift all his life?

In the next decade or so, this question is going to dominate democratic politics in many western countries. (Baby boomers are self-centred people.)

So, what's WA's wise point? I can understand why collectively we should help/protect a child in an unfortunate family situation. I think we should help, to a degree, disabled people. But why should we help a 68 year old person who has simply made bad decisions all their life?

Why should one older, retired person who was careful in family decisions pay money to another older, neighbour who spent the money as soon as it was in their wallet?

What a great idea for those with enough money that they can save it.

Everyone living in Canada since the 1960s has the means to save for their retirement. Excepting people with severe disabilities, no one born in Canada before 1960 has any excuse to say that they couldn't save for their retirement.

Immigrants arrived in Canada in 1980 penniless and with few skills and now have substantial savings. Anyone can do it. This is Canada, fer gawdsakes.

In effect, as more people move their savings to the TFSA vehicle, you will see MORE people qualifying for income supplements in the future. Not less. Which is to say, Harper's plan to increase the TFSA will increase spending and decrease revenue.

According to you, the TFSA means that we will have wealthy people in their 80s with no "taxable income". That's wrong. There is no effective difference between an RRSP and the TFSA: you pay the tax now, or later.

TFSA-holders paid the tax - they just prepaid it.

Edited April 8, 2011 by August1991

[ZenOps]

Meh. It all pales in comparison to silver.

Back in 2005, they made it legal to put Silver or Gold bullion into an RRSP.

If you had bought and stored 500 ounces of Silver in 2005 (approximately $5,000 at the time) it would be worth about $19,000 today in 2011.

Which at 2 to 3% interest in a standard "tax-free" savings account - would take you over a hundred years to match.

Silver baby!

[cybercoma]

Everyone living in Canada since the 1960s has the means to save for their retirement. Excepting people with severe disabilities, no one born in Canada before 1960 has any excuse to say that they couldn't save for their retirement.

Immigrants arrived in Canada in 1980 penniless and with few skills and now have substantial savings. Anyone can do it. This is Canada, fer gawdsakes.

Just because some people did it, doesn't mean everyone can do it. It's possible that they got lucky and we're ignoring those that failed.

Furthermore, it's anyone that works that has saved into CPP/QPP. If you got sick and had to take a significant amount of time off during your working years, you'll have little to no retirement fund. If you stayed home and took care of children because you couldn't afford childcare, then you would have very little in CPP. It's not just people with severe disabilities.

Moreover, I don't know where you picked up this outmoded notion that people lose their jobs and have a hard time finding work because they are lazy. It was more than 60 years ago that we began to realize that people can fall on hard times through no fault of their own. Moreover, this "deserving poor" and "undeserving poor" crap is also antiquated thinking.

[August1991]

Just because some people did it, doesn't mean everyone can do it.

People born in Canada in the 1950s have had 40 years to get it right.

I can understand a John Lennon/Jack Layton/Bob Rae plea to care for our fellow humans. But why should I give money to someone who has had 45 years to change their life?

----

For leftist governments and polticians, there's worse ahead.

If I save my inheritance money and stay at home while my neighbour spends his inheritance on an Alaskan cruise, why should the government tax me and give my savings to him?

Leftists are in for a rough ride.

Edited April 8, 2011 by August1991

[Moonbox]

So you think that the percentage of people that can afford $10,000 is the same as those that can afford $12,000, $15,000, or $50,000? I suppose anyone that can invest $10,000 can also afford to invest $1,000,000?

What the heck are you even talking about? I'm saying the percentage of people that can afford to invest $10,000 annually for 25 years are the people with >100,000 incomes. How many of those people do you know who end up with nothing for income when they retire, thus qualifying for a supplement? Give me that percentage.

I fear that you were right about most people not understanding the TFSA, and you are obviously one of them. People that have been able to afford $10,000 a year into their TFSA will be defined as low-income seniors provided that they didn't make significant investments in other places.

The OAS website is saying that the max income for the GIS is $16,000. What do you think the percentage is of retired folk who have been putting $10,000 in their TFSA each year and only $16000 in retirement income? Pretty freaking low.

The TFSA is a far better investment vehicle for the young than the old. For seniors today, a TFSA is only marginally better than a standard savings account.

Most young people are still putting money into the RSP instead of the TFSA for the tax deduction. Seniors by far prefer the TFSA and they're the ones that have bought in the most to it.

At any rate, the reason that its a bad policy now, let alone in 25 years, is that its a tax cut for people that least need help in retirement saving.

Kind of like RRSP's right?

Even if it only lasts 10-15 years, it will increase the number of people receiving the GIS. It doesn't need to go on forever for that to happen.

Okay we'll wait and see over the next 10-15 years and see:

1) How many wealthy people (the only ones who could save the $10,000 per year) end up with <$16000 in retirement income/year .

2) How long both future Conservative and Liberal governments will allow what will obviously be a fairly significant tax loophole if left unchecked.

I'll agree with you in the sense that if left like this forever, the $10,000 limit will get out of hand. If you or I can see that, I'm sure present and future governments will too, and it will be a very easy thing to to change.

What I won't agree with, in any sense, is that we're going to see a huge abuse of the GIS. The idea of wealthy people with nothing for income when they retire other doesn't really add up.

[Bonam]

I fear that you were right about most people not understanding the TFSA, and you are obviously one of them. People that have been able to afford $10,000 a year into their TFSA will be defined as low-income seniors provided that they didn't make significant investments in other places. Why? Because the interest generated in a TFSA is NOT income. Ergo, people with almost the entirety of their savings in a TFSA will have NO income outside of OAS and whatever private pension they may have.

This is unrealistic. Someone saving for retirement would also have been maxing out their RRSP before maxing out their TFSA. An RRSP more effectively shelters your money from taxation if the goal is to save while working and then withdraw after retirement when your income is lower. Thus, someone with a maxed out TFSA would also have a maxed out and fairly substantial RRSP, meaning that they would have plenty of income coming from their RRSP to disqualify them from receiving the GIS supplement.

At any rate, the reason that its a bad policy now, let alone in 25 years, is that its a tax cut for people that least need help in retirement saving.

I disagree. The people that "least need" help retiring are the ultra rich, who invest millions annually anyway, and for them the 10,000 TFSA will make hardly a dent in the amount of tax they pay. The people who will benefit most are the middle class: working professionals. These are the people who form the solid core of Western societies and economies and reducing taxes for them and encouraging them to save is good policy.

Edited April 8, 2011 by Bonam