Monday, January 05, 2009

Tax Free Savings Account

I've ignored the Tax Free Savings Account (TFSA) issue till now as I'm no longer in the financial advising business. However, as someone who worked in the industry I will tell you how deeply disappointed I am in this scheme.

I worked in an affluent neighbourhood where dual incomes prevailed and we would certainly consider my clients "well to do". However, even then not everyone could max out on their RRSP contributions. The ones who did, would love this TFSA. My clients who made over $150k/y certainly benefit, but even so, there was hardly a shortage of tax havens to squirrel their money away (RESPs, etc).

Now also remember that RRSP contribution room GROWS with income (up to a max). Think about the people around you. If you are familiar with their financial situation, how many have reached their MAX room? Of those, how many are able to fill it, AND make use of all the other tax lowering vehicles already available?

I can tell you when I think of my old clients, even in an affluent neighbourhood, only a few could use this to their full advantage. The ones who can, we already regard as extremely wealthy. The reality is that most of us have mortgages to pay, mouths to feed, and backs to clothe.

The majority of us don't have enough spare cash lying around to fill our existing tax havens. We really don't need more. I have spent time going through receipts with clients trying to find ways to squeeze nickles out at the end of every month just to help build a small cushion for emergencies. Another 5k tax free - what a joke.

Before you jump up and down and say "what a great idea", think about the broader implications of the TFSA. It means that the very wealthy pay less into the government coffers. It means that there's more incentive to save and less to spend during these tough economic times. It means still that nothing has been done for those people who are in no position to save even for their own retirement, let alone for investing above and beyond.

At the end of the day, this scheme benefits ONLY the extremely wealthy. MOST Canadians can't find the cash to fill their RRSPs, RESPs, or even buy life insurance to protect the ones they love most.

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