The following is an Open Letter addressed to the new Finance Minister, Bill Morneau. It is republished here with the permission of the writer, Gordon P. Johnson (coordinates below). It addresses a topic we’ve been looking at in depth ever since the election: the Liberal promise to cut the annual TFSA contribution almost in half, from $10,000 to $5,500. He points out that preserving the TFSA limit at the higher amount will benefit the very people the Liberal party has said it wishes to help: the middle class and seniors. Because this is an open letter, we have not edited the letter nor attempted to add subheadings to break up the text.
Dear Mr. Morneau,
First of all I wish to congratulate you on your recent Cabinet post.
Mr. Trudeau stated that should he form the next government of Canada he would reduce the recently increased TFSA limit from $10,000 to the previous level of $5,500.
His reasoning is that the $10,000 limit only benefits the wealthy and not the average middle class taxpayer. I contest that this declaration is a political move and not at all in the best interests of the average middle class person.
He spoke of reducing taxes both for the middle class and the senior population.
Let’s look at the TFSA account and how it potentially benefits the very people he claimed that he wished to help (middle class and seniors). Not only does it benefit through compounding tax free gains (both short term as well as long term) but it reduces the tax burden at retirement when needed the most.
Let’s assume that your average middle age, middle class taxpayer is earning $50,000 and struggling to save for retirement. He certainly isn’t contributing his maximum to a TFSA – most likely he isn’t contributing anything to his TFSA.
His/her parents, possibly seniors on a fixed income, have accumulated some savings and have a clear title home. Their savings are invested and the income is taxable. If the savings were placed into a TFSA that income would be tax free—a significant benefit to seniors trying to maximize their cash flow.
However, the real benefit to the middle age, middle class wage earner is the carry forward of unused TFSA contributions. Let’s say that upon his or her parents passing they inherit $250,000. These funds are after tax and there is no benefit to placing them in an RRSP. Continue Reading…